Court of Appeal · Decided 27 May 2015

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

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[2015] SGCA 30Case no. Civil Appeals Nos 148 and 149 of 2013; Summonses Nos 5277 and 5985 of 2014

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International Arbitration Act 1994

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Sundaresh Menon CJ (delivering the judgment of the majority):
Introduction
[1] The present appeals are both brought by the appellant, PT Perusahaan Gas Negara (Persero) TBK (“PGN”), against the respondent, CRW Joint Operation (“CRW”). Civil Appeal No 148 of 2013 (“CA 148”) concerns the question of whether a majority arbitral award dated 22 May 2013 (“the Interim Award”) ordering PGN to pay CRW a sum of US$17,298,834.57 (“the Adjudicated Sum”) should be set aside, while Civil Appeal No 149 of 2013 (“CA 149”) concerns the question of whether the order of court dated 2 July 2013 granting CRW leave to enforce the Interim Award against PGN in the same manner as a court judgment (“the Enforcement Order”) should be set aside. The Adjudicated Sum was the amount that the dispute adjudication board (“DAB”) constituted under the contract between the parties (“the Contract”) found PGN liable to CRW for. Reference of a dispute to the DAB is the first step under the dispute resolution regime prescribed in the Contract. These appeals turn on the interpretation of various aspe--cts of that regime as well as the effect of s 19B of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”).
[2] Justice Quentin Loh and I have had the advantage of reading in draft the judgment of Chan Sek Keong SJ. With respect, we do not agree with Chan SJ’s views. This judgment sets out the decision of this court, which is reached by a majority consisting of Loh J and myself.
Background facts
[3] PGN is an Indonesian company that owns and operates gas transmission systems in Indonesia. CRW is a group consisting of three Indonesian limited liability companies. In 2006, PGN engaged CRW to design, procure, install, test and pre-commission a pipeline to convey natural gas from South Sumatra to West Java. The parties’ relationship was governed by the Contract, which included (among other documents) a set of conditions of contract (“the Conditions of Contract”). The Conditions of Contract adopted, with modification, the standard provisions of the Conditions of Contract for Construction: For Building and Engineering Works Designed by the Employer (“the Red Book”) published by the International Federation of Consulting Engineers or, as that body is known in French, the Fédération Internationale des Ingénieurs-Conseils (“FIDIC”). Specifically, the Conditions of Contract were modelled on the 1999 edition of the Red Book (“the 1999 Red Book”). The Contract was governed by Indonesian law.
[4] In the course of the project, CRW submitted a number of Variation Order Proposals (“VOPs”) to PGN for variation works which CRW contended it had carried out. These were disputed by PGN. The parties referred their dispute over 13 VOPs to the DAB in accordance with the dispute resolution mechanism set out in cl 20 of the Conditions of Contract.
The dispute resolution mechanism under cl 20 of the Conditions of Contract
[5] The material parts of cl 20 provide as follows (we have numbered each sub-clause in square brackets for ease of subsequent reference):
[6] In our judgment, the operation of the aforesaid dispute resolution mechanism, in general, may be summarised as follows:
(a) If “a dispute (of any kind whatsoever)” arises between the parties “in connection with, or arising out of, the Contract or the execution of the [w]orks [thereunder]”, either party may refer the dispute in writing to the DAB for its decision.
(b) The decision of the DAB shall be binding on both parties, who shall “promptly give effect to it” unless and until it is revised pursuant to an amicable settlement as contemplated in cl 20.5 or by an arbitral award as described in cl 20.6.
(c) If either party is dissatisfied with the DAB’s decision, then it may, within 28 days after receiving the decision, issue a notice of dissatisfaction (an “NOD”) to the other party. If no NOD is issued within the stipulated time frame, then the decision of the DAB becomes final and binding.
(d) Where an NOD has been issued, the parties are required to first attempt to settle their dispute amicably under cl 20.5 before commencing arbitration.
(e) If attempts at amicable settlement are not successful or if no such attempts are made, the parties’ dispute may be referred to arbitration after 56 days from the day on which the NOD is issued. In the course of the arbitration, the tribunal shall have “full power to open up, review and revise” any decision of the DAB that is relevant to the dispute.
(f) Where a DAB decision has become final and binding on the parties because no NOD has been issued within the stipulated time frame, but a party fails to comply with it, that failure may be referred to arbitration directly without the parties having to first go through the steps set out in cll 20.4 and 20.5.
The DAB decision which PGN rejected
[7] The DAB rendered several decisions on the 13 disputed VOPs. PGN accepted all of these decisions except the third decision (“DAB No 3”), under which it was required to pay CRW the Adjudicated Sum. This decision was conveyed to the parties on 19 November 2008 at a meeting. The DAB subsequently issued the written grounds for its decision on 25 November 2008. PGN lodged an NOD against DAB No 3 on 20 November 2008 without waiting for those written grounds.
The arbitration in 2009
[8] CRW made several requests to PGN for payment of the Adjudicated Sum awarded under DAB No 3, but to no avail. Taking the view that PGN was in breach of its obligations under the Conditions of Contract, CRW commenced arbitration on 13 February 2009 claiming, essentially, a declaration that PGN had an immediate obligation to pay CRW the Adjudicated Sum and an order for “prompt payment” of that sum (“the 2009 Arbitration”).
[9] PGN did not file a counterclaim. However, by way of its defence, PGN sought from the tribunal (“the 2009 Tribunal”) a declaration that: (a) DAB No 3 was not final and binding; (b) PGN was not obliged to pay CRW the Adjudicated Sum; and (c) PGN had not breached any of its obligations under the Conditions of Contract in refusing to pay CRW that sum. In its defence, PGN also requested the 2009 Tribunal to “open up, review and revise” the DAB’s decision in DAB No 3. PGN’s position, in essence, was that having issued an NOD in respect of DAB No 3, it was no longer obliged to pay the Adjudicated Sum.
[10] The majority of the 2009 Tribunal (“the 2009 Majority Arbitrators”) agreed with CRW. In their award dated 24 November 2009, which they termed a “final” award (“the Final Award”), the 2009 Majority Arbitrators held (at [41]) that cl 20.4 of the Conditions of Contract made it “abundantly clear” that a DAB decision had to be given prompt effect and could only be varied by a subsequent amicable settlement or arbitral award. The 2009 Majority Arbitrators concluded that service of an NOD did not alter that position. Such service was no more than compliance with a condition precedent that had to be met before a party dissatisfied with a DAB decision could refer that decision to arbitration. The 2009 Majority Arbitrators, and indeed, even CRW, were in agreement that PGN could, if it wished, commence a new arbitration to review and revise DAB No 3, but this was not a course open to it in the 2009 Arbitration because the only relief which CRW had sought in that arbitration was for DAB No 3 to be honoured, and because PGN had not issued a counterclaim to set aside that decision.
The first set of enforcement proceedings
[11] Pursuant to its application in Originating Summons No 7 of 2010, CRW obtained leave under s 19 of the IAA to enforce the Final Award in the same manner as a court judgment. PGN applied by way of Originating Summons No 206 of 2010 (“OS 206”) to have the Final Award set aside on various grounds. Primarily, it argued that:
(a) the 2009 Majority Arbitrators exceeded their jurisdiction in converting DAB No 3 into a final award without first determining the correctness of the DAB’s decision on the 13 disputed VOPs;
(b) the arbitral procedure was not in accordance with cl 20.6 of the Conditions of Contract, which required the 2009 Tribunal to determine the merits of the parties’ underlying dispute over the correctness or the merits of DAB No 3 (the parties “Underlying Dispute”) before DAB No 3 could be converted into a final award; and
(c) the 2009 Majority Arbitrators’ refusal and/or failure to hear the parties on the merits of the Underlying Dispute was a breach of natural justice.
[12] The judge who heard OS 206 (“the OS 206 judge”) found in favour of PGN on only the first of the three grounds listed at [11] above and set aside the Final Award on that basis (see PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] 4 SLR 672 (“Persero HC (2010)”). She rejected PGN’s contention that the parties’ agreed arbitral procedure had not been complied with and that there had been a breach of natural justice.
[13] CRW appealed against the decision of the OS 206 judge to set aside the Final Award. In its decision issued on 13 July 2011 (reported as CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 (“Persero CA”)), the Court of Appeal upheld the OS 206 judge’s decision that the 2009 Majority Arbitrators had exceeded their jurisdiction in failing to consider the merits of the parties’ Underlying Dispute before issuing the Final Award. The Court of Appeal also held that there had been a breach of natural justice because PGN had not been given a real opportunity to defend itself against the claim for the sum it was ordered to pay CRW under DAB No 3.
The arbitration in 2011
[14] In Persero CA, the Court of Appeal commented, obiter, that: (a) PGN was contractually obliged to comply with DAB No 3 even though it had issued an NOD in respect of that decision and the merits of that decision were being arbitrated; and (b) DAB No 3 was “enforceable directly by an interim or partial award” (at [63]). Relying on the Court of Appeal’s interpretation of cl 20 of the Conditions of Contract, CRW commenced a second arbitration in October 2011 (“the 2011 Arbitration”). This time, it sought a final determination that PGN was liable, on the merits, to pay CRW the Adjudicated Sum awarded under DAB No 3, and pending that final determination, a partial or interim award for the same sum (with interest).
[15] The arbitral tribunal in the 2011 Arbitration (“the 2011 Tribunal”) unanimously agreed that DAB No 3 was binding on the parties even though PGN had issued an NOD in respect of that decision. However, the 2011 Tribunal was divided on the issue of whether CRW was entitled to enforce DAB No 3 by way of an interim award. The majority of the 2011 Tribunal (“the 2011 Majority Arbitrators”) thought that DAB No 3 could and should be enforced by an interim award. They opined that enforcing DAB No 3 in that manner would give effect to the parties’ commercial intent in including the DAB mechanism in the Conditions of Contract; otherwise, the DAB mechanism would be rendered toothless.
[16] One of the arguments which the 2011 Tribunal had to deal with was PGN’s contention that the interim award sought by CRW would be inconsistent with s 19B of the IAA (referred to hereafter as “s 19B” for short). Section 19B provides:
[17] PGN contended that the interim award sought by CRW would not be “final” for the purposes of s 19B since DAB No 3 was liable subsequently to be opened up and reviewed pursuant to cl 20.6[2] of the Conditions of Contract at the arbitration of the parties’ Underlying Dispute over the merits of DAB No 3. The 2011 Majority Arbitrators disagreed with PGN. They were satisfied that an interim award giving effect to DAB No 3 would possess the requisite measure of finality and would not contravene s 19B. Their explanation was as follows (at [51]–[52] of the Interim Award):
[18] The 2011 Majority Arbitrators therefore granted CRW’s application for an interim award and made the Interim Award ordering PGN to “promptly pay” CRW the Adjudicated Sum awarded under DAB No 3 pending the final resolution of the parties’ Underlying Dispute. The dispositive part of the Interim Award stated:
[19] The dissenting arbitrator in the 2011 Arbitration regarded the interim award sought by CRW as a provisional award and considered that such an award was precluded in an arbitration seated in Singapore by reason of s 19B. He was of the view that by virtue of cl 20.6 of the Conditions of Contract (see [5] above), an interim award giving effect to a decision of the DAB could be revised, and this, he concluded, was directly contrary to s 19B.
The second set of enforcement proceedings
[20] Despite the issuance of the Interim Award, PGN maintained its refusal to pay CRW the Adjudicated Sum awarded under DAB No 3, prompting CRW to apply by way of Originating Summons No 585 of 2013 (“OS 585”) for leave to enforce the Interim Award in the same manner as a court judgment. Leave was given in the form of the Enforcement Order (as defined at [1] above), but PGN subsequently filed Summons No 3923 of 2013 (“SUM 3923”) to set aside that order. At the same time, PGN also filed Originating Summons No 683 of 2013 (“OS 683”) to set aside the Interim Award.
[21] SUM 3923 and OS 683 were heard by the same judge (“the Judge”), who was a different judge from the OS 206 judge. PGN argued that the Interim Award was in effect a provisional award because the 2011 Majority Arbitrators intended that award to be final only up to the time the 2011 Tribunal determined the parties’ Underlying Dispute on the merits with finality. The legislative history of s 19B, PGN submitted, revealed that such provisional awards were prohibited by that section. Furthermore, the Interim Award had the effect of preventing the 2011 Tribunal from proceeding to determine the merits of the Underlying Dispute because that future determination would vary, amend, correct, review, add to or revoke the Interim Award in a manner prohibited by s 19B(2). Therefore, PGN contended, the 2011 Majority Arbitrators had acted in excess of their jurisdiction, in breach of natural justice and/or in breach of the parties’ agreed arbitral procedure in issuing the Interim Award, which should therefore be set aside under s 24 of the IAA and/or Art 34(2) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”).
The decision below
[22] The Judge declined to set aside the Interim Award and dismissed both SUM 3923 and OS 683 (see PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) and another matter [2014] SGHC 146 (“Persero HC (2014)”)). He considered a provisional award to be one which granted relief that was intended to be effective only for a limited period (at [124]). He accepted that the Interim Award was a provisional award in so far as it would cease to be effective “when … the 2011 [T]ribunal has resolved with finality every aspect of the one dispute before it” (at [143]). However, he held that there was nothing in s 19B which either prohibited or permitted provisional awards. Additionally, he was of the view that the legislative history of s 19B clearly showed its limited purpose: it was added purely to clarify that all arbitral awards, whether interim or final, were final and conclusive as to the merits of the subject matter determined under the respective awards.
[23] The Judge also held that the Interim Award did not breach s 19B because it was final and binding. He reasoned that the dispositive part of the Interim Award in effect declared that PGN had a contractual obligation to “promptly pay” CRW the Adjudicated Sum awarded under DAB No 3, and ordered PGN to make prompt payment of that sum. Regardless of how the parties’ Underlying Dispute over the merits of DAB No 3 was finally resolved in the future, the Judge stated, it would never cease to be true that PGN had this contractual obligation and ought to have made the requisite payment to CRW promptly. In that sense, the Interim Award was final and binding.
[24] Furthermore, the Judge held, a future determination of the merits of the parties’ Underlying Dispute would not vary the Interim Award because the final award which set out that future determination could be worded to stand alongside the Interim Award. If the 2011 Tribunal eventually found that the Adjudicated Sum awarded under DAB No 3 was correct, it would merely need to say so in its final award. If the 2011 Tribunal found that the Adjudicated Sum was too little, it would be open to the tribunal to order PGN to pay CRW the additional amount in its final award. Finally, if the 2011 Tribunal found that the Adjudicated Sum was too much, it could require CRW to return the excess to PGN in its final award. In each of these scenarios, the Judge considered, the final award resolving the parties’ Underlying Dispute would not vary, amend, correct, review, add to or revoke the Interim Award. Rather, the Interim Award and the final award would stand together for enforcement. Hence, there would be no breach of s 19B(2).
[25] On the basis of the foregoing, the Judge held that none of PGN’s grounds of challenge (ie, excess of jurisdiction, breach of natural justice and/or breach of the parties’ agreed arbitral procedure) were sustainable. Consequently, both SUM 3923 and OS 683 were dismissed. PGN filed separate Notices of Appeal against each of those decisions (namely, CA 148 in respect of the Judge’s dismissal of OS 683, and CA 149 in respect of his dismissal of SUM 3923).
PGN’s case on appeal
[26] PGN’s case on appeal consists of two arguments. The first is that the Interim Award is inconsistent with s 19B because it is an award that only has interim finality. According to PGN, both CRW and the 2011 Majority Arbitrators envisaged that the interim award sought by CRW would be “subject to future variation”. It refers to a number of documents to substantiate this submission.
[27] First, it refers to that portion of the Terms of Reference for the 2011 Arbitration where CRW’s claim and the relief which it sought are summarised. It points out that what CRW sought was an interim or partial award for the Adjudicated Sum awarded under DAB No 3 “pending the resolution of [the] parties’ dispute” [emphasis added]. Second, it refers to CRW’s Statement of Claim for the 2011 Arbitration and highlights that, similarly, CRW expressly stated at para 30(a) thereof that it sought an interim or partial award “pending the resolution of [the] parties’ dispute” [emphasis added]. PGN argues that the word “pending” in these two documents demonstrates that CRW never intended the interim relief which it sought to finally dispose of the parties’ Underlying Dispute over the merits of DAB No 3. Instead, it always acknowledged the possibility that any interim award made by the 2011 Tribunal to give effect to DAB No 3 could be varied by a final award on the merits of that DAB decision.
[28] The third document which PGN submits supports its first argument on appeal is the Interim Award. PGN points to [37] of that award, where the 2011 Majority Arbitrators summarised CRW’s position in the 2011 Arbitration as follows:
PGN argues that the fact that CRW was prepared to rely on DAB No 3 even at the stage of seeking a final award on the merits of the parties’ Underlying Dispute demonstrates that CRW essentially sought only one relief in the 2011 Arbitration, ie, the enforcement of DAB No 3. PGN reiterates that this shows that CRW never intended the interim award which it sought to finally resolve the parties’ Underlying Dispute. Instead, CRW was aware that any interim award made could subsequently be varied by the 2011 Tribunal’s final award on the merits of that dispute.
[29] In this regard, PGN also refers to [51]–[52] of the Interim Award (reproduced at [17] above) and argues that the 2011 Majority Arbitrators were themselves of the view that the Interim Award would eventually be “altered” by the 2011 Tribunal’s final award on the merits of the parties’ Underlying Dispute.
[30] The fourth document which PGN relies on in respect of its first argument before this court is a unanimous partial award dated 25 September 2014 (“the Partial Award”), which was made in the 2011 Arbitration after SUM 3923 and OS 683 were heard by the Judge. PGN seeks to have the Partial Award admitted into evidence by way of Summons No 5277 of 2014 (“SUM 5277”). Our decision on SUM 5277 is set out below at [37]–[40], together with our decision on PGN’s other application for leave to adduce further evidence, Summons No 5985 of 2014 (“SUM 5985”) (see [41]–[44] below). For the time being, we simply set out the argument that PGN makes based on the Partial Award.
[31] In evaluating CRW’s claim against PGN in respect of the 13 disputed VOPs, the DAB formulated nine heads of claim (“Heads of Claim”). One of the questions which the 2011 Tribunal addressed in the Partial Award was whether the DAB’s decision on each of the nine Heads of Claim was in accordance with Indonesian law and the provisions of the Contract (including the Conditions of Contract). The 2011 Tribunal summarised its overall conclusion at [100.6]–[100.8] of the Partial Award. Only [100.6(a)] and [100.6(c)] are relevant for present purposes, and they state as follows:
PGN contends that the above extract from the Partial Award clearly demonstrates that the Interim Award has in fact been varied by the 2011 Tribunal’s subsequent findings in the Partial Award, and this in turn supports its argument that the Interim Award was only meant to have interim finality, in breach of s 19B. Therefore, PGN submits, the Interim Award should be set aside.
[32] PGN’s second argument on appeal concerns the effect of cl 20.4 of the Conditions of Contract. PGN argues that the effect of cl 20.4 is that DAB No 3 ceases to be binding as soon as the 2011 Tribunal makes any award on the parties’ Underlying Dispute over the merits of that DAB decision. Here, the 2011 Tribunal has made certain findings on the merits of DAB No 3 as set out in the Partial Award. PGN argues that DAB No 3 thus ceased to have any binding effect as from the date of issuance of the Partial Award (ie, 25 September 2014). However, it does not go further to explain why the Interim Award, which is founded upon DAB No 3, should therefore be set aside.
[33] We note at this point that PGN bears the burden of demonstrating that one or more of the grounds listed in s 24 of the IAA and/or Art 34(2) of the Model Law for setting aside an arbitral award are satisfied before the Interim Award can be set aside. PGN has not explained which specific ground for setting aside would be satisfied if either or both of its arguments on appeal are accepted. However, we understand the essence of PGN’s case to be that if either or both of these arguments are made out, it will have established that the Interim Award was subject to revision and was hence not final; since such a non-final award would be contrary to s 19B, which is part of the law governing the 2011 Arbitration, it would follow that the 2011 Arbitration was not conducted in accordance with the parties’ agreed arbitral procedure. If PGN can establish this, its challenge to the Interim Award would fall within Art 34(2)(a)(iv) of the Model Law.
CRW’s case on appeal
[34] CRW’s response to PGN’s first argument on appeal hinges on the distinct and separate nature of two questions which CRW says were put to the 2011 Tribunal in the 2011 Arbitration. The first question is whether CRW is entitled to the Adjudicated Sum awarded under DAB No 3 as a final determination of what is ultimately due to it. This, CRW accepts, will entail evaluating DAB No 3 on the merits, and can only be determined after an arbitration that examines and inquires into those merits. The second question is whether CRW is entitled to an immediate award for the Adjudicated Sum on the basis that CRW is entitled to this sum as a matter of the proper interpretation of the Conditions of Contract, even though the 2011 Tribunal’s final determination of the first question may eventually lead to a different result. CRW maintains that the 2011 Majority Arbitrators finally disposed of the second question in the Interim Award. The Interim Award, CRW submits, will not be varied by a future final award on the first question because the latter award will deal with only that specific question. CRW also argues that s 19B only precludes the variation by a later award of an interim award previously made, and not the making of an interim award such as the Interim Award in this case.
[35] As regards PGN’s second argument on appeal, CRW contends that PGN’s interpretation of cl 20.4 of the Conditions of Contract is not commercially sensible. It argues that the commercially sensible way of reading cl 20.4 is that DAB No 3 only ceases to be binding upon the final determination of the parties’ Underlying Dispute over the merits of that DAB decision, and even if there is any partial determination of the merits of DAB No 3 in the meantime, this would not affect the Interim Award.
Our decision
PGN’s applications for leave to adduce further evidence – SUM 5277 and SUM 5985
[36] As mentioned earlier, by way of SUM 5277 and SUM 5985, PGN seeks to adduce further evidence for the purposes of the present appeals. The further evidence which is the subject matter of SUM 5277 is the second affidavit of Mr Muhammad Husseyn Umar (“Mr Umar”), while the further evidence which is the subject matter of SUM 5985 is the fourth affidavit of Mr Umar.
SUM 5277 – Mr Umar’s second affidavit
[37] Mr Umar’s second affidavit pertains to new developments in the 2011 Arbitration that occurred after the hearing before the Judge. The exhibits in that affidavit include the parties’ submissions to the 2011 Tribunal on the matters considered in the Partial Award and the Partial Award itself. Apart from what we have already mentioned in relation to the Partial Award (see [30]–[31] above), PGN also points out that the 2011 Tribunal considered the possibility of collusion between the DAB and CRW. During the hearing before the 2011 Tribunal, CRW’s representative, Mr Boy Eka Setiabudhi (“Mr Setiabudhi”), admitted that the DAB had prepared his witness statement. The 2011 Tribunal ruled in the Partial Award that PGN had failed to cross the high threshold necessary to make out either bad faith on the DAB’s part in arriving at its decision in DAB No 3 or collusion between the DAB and CRW. However, it also stated (at [76] of the Partial Award) that it “may not have been advisable [for the DAB] to … draft witness statements on behalf of any party”.
[38] PGN argues that it should be given leave to adduce Mr Umar’s second affidavit in evidence because that affidavit supports its case on appeal. According to PGN, the Partial Award demonstrates that the Interim Award was only meant to have interim finality. Furthermore, although the 2011 Tribunal did not consider bad faith and/or collusion on the part of the DAB to have been made out, it made the observation at [37] above on the propriety of the DAB’s preparation of Mr Setiabudhi’s witness statement. PGN maintains that Mr Setiabudhi’s admission that the DAB had prepared his witness statement and the 2011 Tribunal’s aforesaid observation highlight that “there is a real risk that the DAB was acting unfairly and/or may have colluded with [CRW]”. In view of this, PGN submits, the Interim Award should be set aside; otherwise, the above-mentioned discrepancies will simply be whitewashed.
[39] CRW does not appear to contest the admission of the evidence set out in Mr Umar’s second affidavit. In fact, it relies on the same to demonstrate that the 2011 Tribunal is currently still in the process of reviewing the merits of the parties’ Underlying Dispute. Additionally, CRW deals with the merits of PGN’s arguments predicated on the new evidence. It argues that the Partial Award does not change the final and binding nature of the Interim Award because the Interim Award only deals with the distinct issue of whether CRW is entitled, pursuant to cl 20.4 of the Conditions of Contract, to prompt payment of the Adjudicated Sum awarded under DAB No 3, notwithstanding the fact that the 2011 Tribunal’s final determination of the merits of the Underlying Dispute is still pending. The 2011 Tribunal’s subsequent ruling in the Partial Award that CRW is not entitled to the quantum claimed under certain Heads of Claim, CRW submits, is only relevant in so far as the separate issue of its final entitlement to the Adjudicated Sum or any other sum determined by the 2011 Tribunal is concerned.
[40] In our judgment, it is relevant for us to consider the effect which the Partial Award has on the finality of the Interim Award. Additionally, we note CRW’s willingness to address the merits of PGN’s arguments predicated on the Partial Award. In the circumstances, we allow SUM 5277 and admit Mr Umar’s second affidavit.
SUM 5985 – Mr Umar’s fourth affidavit
[41] Mr Umar’s fourth affidavit pertains to further developments in the 2011 Arbitration after the Partial Award was issued. CRW was directed by the 2011 Tribunal to set out its justification for the quantum which it claimed under each of the Heads of Claim that the tribunal had ordered (via the Partial Award) to be opened up, reviewed and revised. CRW took the position that its basis of calculating the quantum which it was entitled to under the 13 disputed VOPs was different from that adopted by the DAB.
[42] PGN argues that the evidence pertaining to these new developments is relevant because CRW’s attempt to introduce a new basis of calculation raises the question of whether the Interim Award, which is based on DAB No 3, was properly rendered. PGN suggests that it was not properly rendered since it appears that CRW itself intends to challenge the entire basis of DAB No 3.
[43] CRW, on the other hand, argues that the evidence in Mr Umar’s fourth affidavit is irrelevant for the purposes of the present appeals as it relates to the 2011 Tribunal’s consideration of the parties’ Underlying Dispute over the merits of DAB No 3. That, CRW submits, is a distinct matter which has no bearing on whether DAB No 3 should be enforced by way of the Interim Award pending the 2011 Tribunal’s determination of the parties’ Underlying Dispute.
[44] We agree with CRW that Mr Umar’s fourth affidavit relates to the merits of the parties’ Underlying Dispute and not the Interim Award, and therefore has no relevance to the present appeals. Accordingly, we dismiss SUM 5985.
Final, interim, partial and provisional awards
[45] We digress briefly at this point to resolve some points of terminology before proceeding to analyse PGN’s two arguments on appeal. The terms “partial” award and “interim” award are often used interchangeably to refer to the same category of arbitral awards (see Gary B Born, International Commercial Arbitration Vol III (Wolters Kluwer, 2nd Ed, 2014) (“Born”) at p 3020; and Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th Ed, 2009) at paras 9.19–9.25). In broad terms, this category of arbitral awards refers to awards made in the course of the arbitral proceedings that dispose of certain preliminary issues or certain claims for relief prior to the disposition of all the issues in the arbitration.
[46] Born defines a “partial” award (at p 3015) as one which:
[47] In contradistinction, an “interim” award (see Born at p 3020) is one which:
[48] Both partial awards and interim awards are capable of being recognised and enforced by domestic courts. They are also susceptible to being set aside (see Born at pp 3018 and 3021).
[49] “Provisional” awards, on the other hand, are awards that are issued to protect a party from damage during the course of the arbitral process. Gary B Born, International Commercial Arbitration Vol II (Wolters Kluwer, 2nd Ed, 2014) defines a “provisional” award (at p 2427) as one that is:
[51] The term “final” award can be understood in a number of ways. First, it can refer to an award which resolves a claim or matter in an arbitration with preclusive effect (ie, the same claim or matter cannot be re-litigated). Even provisional awards are “final” in this sense. As Born states (at pp 3013–3014):
[52] Second, it can refer to awards that have achieved a sufficient degree of finality in the arbitral seat. Born states that this would most obviously be so in cases where the award is granted “confirmation or exequatur”, or is no longer susceptible to being appealed against or being subject to annulment proceedings in the arbitral seat (at p 3014).
[53] Third, it can refer to the last award made in an arbitration which disposes of all remaining claims. This is a “final” award in the sense used in Art 32(1) of the Model Law.
PGN’s first argument on appeal
[54] Against the background set out at [45]–[53] above, we turn to the substantive issues before this court. In sum, we reject PGN’s first argument on appeal because it fails to appreciate that cl 20.4 of the 1999 Red Book (which is identical to cl 20.4 of the Conditions of Contract) imposes a distinct contractual obligation on the parties to comply promptly with a DAB decision once it is issued. This is so whether or not the DAB decision is subsequently revised or opened up, and whether or not the arbitral tribunal eventually concludes that a different amount from that determined by the DAB is in fact due to the receiving party (ie, the party that is to receive payment under the DAB decision). In brief terms, the scheme under a contract which incorporates the dispute resolution mechanism set out in cl 20 of the 1999 Red Book is that any differences as to matters arising under the contract may be resolved in the first instance by the DAB. The DAB’s decision (if it is sought) must be complied with and acted upon at once. However, a party that is dissatisfied with the DAB’s decision may challenge it. Without derogating from the obligation of the parties to immediately implement and give effect to the DAB’s decision, an arbitral tribunal may, usually at a significantly later point in time (and only if the parties fail to amicably settle their differences over the DAB’s decision), open up and revise the DAB’s decision. In doing so, the tribunal would be considering a conceptually distinct question, namely, the state of the final accounts between the parties. We do not agree that the 2011 Majority Arbitrators intended the Interim Award which they made to be subsequently varied by future awards that would be issued in the course of the 2011 Arbitration. Even if they did, s 19B operates to render the Interim Award final and binding as regards the particular issue which that award decided, namely, PGN’s obligation under cl 20.4 of the Conditions of Contract to make prompt payment of the Adjudicated Sum awarded under DAB No 3 to CRW. Nothing that the 2011 Tribunal says or does can change that. We elaborate below.
Interpretation of cll 20.4 and 20.6 of the Conditions of Contract
[55] We begin with the interpretation of cl 20.4 of the Conditions of Contract in so far as the effect of a DAB decision is concerned. In our judgment, that clause imposes one distinct contractual obligation on the parties and confers a conditional right on a party who wishes to challenge a DAB decision. First, as to the obligation, we are satisfied that cl 20.4 (specifically, cl 20.4[4]) imposes an affirmative obligation on the parties to “promptly give effect to [a DAB decision]”. In particular, the paying party (ie, the party that is required to make any payment under the DAB’s decision) has a contractual obligation to pay promptly, notwithstanding its views on the merits of the DAB’s decision. This point is neatly encapsulated by Prof Nael G Bunni (“Prof Bunni”) in his article entitled “The Gap in Sub-clause 20.7 of the 1999 FIDIC Contracts for Major Works” [2005] ICLR 272 as follows (at p 276):
[56] This follows from the plain words of cl 20.4[4] of the Conditions of Contract:
[57] In our judgment, the following propositions cannot persuasively be disputed and bear emphasis:
(a) A DAB decision is immediately binding once it is made. This may be distinguished from a DAB decision in respect of which no NOD has been issued within the stipulated 28-day time frame. Such a DAB decision, under cl 20.4[7], becomes “final and binding” [emphasis added].
(b) The corollary of a DAB decision being immediately binding once it is made is that the parties are obliged to promptly give effect to it until such time as it is overtaken or revised by either an amicable settlement or a subsequent arbitral award.
(c) The fact that a DAB decision is immediately binding once it is made until and unless it is revised by either an amicable settlement or an arbitral award is significant. As will be evident shortly from our discussion of the second of the two points mentioned at [55] above in relation to cl 20.4, the process of amicable settlement under cl 20.5 or arbitration under cl 20.6 may only be initiated by a party with a view to having the DAB decision reviewed and revised if that party has issued an NOD. Hence, the issuance of an NOD self-evidently does not and cannot displace the binding nature of a DAB decision or the parties’ concomitant obligation to promptly give effect to and implement it.
[58] Our second point in relation to cl 20.4 concerns the dissatisfied party’s conditional right to challenge a DAB decision. A dissatisfied party (usually the paying party) who wishes to challenge a DAB decision must issue an NOD, and thereafter first attempt to amicably settle its disagreement with the DAB decision with the other party. It is only if no amicable settlement is reached or if no attempt at amicable settlement is made that the dissatisfied party has, after 56 days from the date of issuance of the NOD, the right to refer the merits of the DAB decision to arbitration. This follows from:
(a) cl 20.4[5], which provides that either party, if dissatisfied with a DAB decision, may, within 28 days after receiving the decision, give notice of its dissatisfaction by issuing an NOD;
(b) cl 20.4[6], which provides that except as permitted under cl 20.7 or cl 20.8, no party may commence arbitration unless an NOD has been issued;
(c) cl 20.4[7], which provides that if an NOD is not issued within 28 days after receipt of the DAB decision, the decision shall become final and binding;
(d) cl 20.5, which states that if an NOD has been issued, the parties are to attempt to settle their dispute amicably before commencing arbitration; and
(e) cl 20.6, which states that “any dispute in respect of which the DAB’s decision … has not become final and binding” shall, unless settled amicably pursuant to cl 20.5, be “finally settled by international arbitration”.
[59] It follows that the issuance of an NOD is a condition precedent to a dissatisfied party’s ability to seek a review of a DAB decision on the merits through either negotiations aimed at amicable settlement or arbitration. But, as noted above, the issuance of an NOD does not in any way displace the binding (albeit non-final) effect of the DAB decision in question or the parties’ obligation to promptly give effect to and implement it. If an NOD has been issued and if no amicable settlement of the parties’ dispute is reached (or no attempt at amicable settlement is made) within 56 days from the date of issuance of the NOD, then – and only then – the DAB decision in question may be opened up, reviewed and revised at an arbitration which is directed towards the merits of that decision.
[60] With regard to the first point that we have referred to at [55] above (namely, the parties’ obligation to comply promptly with a DAB decision), where compliance entails payment of a sum of money determined by the DAB, the question arises as to whether this obligation, if it is not complied with, is capable of being enforced by way of a separate arbitration or, for that matter, by way of a separate interim award within the same arbitration that is also concerned with the underlying merits of that DAB decision. We recognise that there are different views on this. However, in our judgment, this obligation is capable of being enforced by arbitration in the manner just described for the reasons set out below.
[61] To begin with, we return to the dispute resolution framework set out in cl 20 of the Conditions of Contract, especially cl 20.6 (which has been reproduced at [5] above), the effect of all of which has been summarised at [6] above. To recapitulate, this framework contemplates that “a dispute (of any kind whatsoever) … in connection with, or arising out of, the Contract or the execution of the [w]orks [thereunder]” may be referred to a DAB for its decision. If such a dispute is indeed referred to a DAB and if the DAB’s decision has not become final and binding because of the issuance of an NOD within the permitted time frame, the dispute shall be resolved: (a) first, by amicable settlement, if possible; and (b) failing amicable settlement, by arbitration.
[62] The first question which arises is whether the disputes that may be referred to arbitration exclude certain categories of disputes which must be resolved in some other way. In our judgment, the broad terms used in cl 20.4[1] and cl 20.6[1], which refer respectively to “a dispute (of any kind whatsoever)” and “any dispute in respect of which the DAB’s decision … has not become final and binding”, militate against this.
[63] The specific dispute in the present appeals is a narrow one – it is whether a DAB decision ordering the payment of a sum of money gives rise to an immediate obligation on the part of a paying party who has issued an NOD in respect of that decision to promptly make the payment ordered by the DAB. Such a dispute could conceivably be referred back, in the first instance, to the DAB since it undoubtedly is one that “arises between the [p]arties in connection with, or arising out of, the [c]ontract” as provided in cl 20.4[1]. If such a dispute is so referred and if the DAB resolves it affirmatively, there can really be no objection to that later DAB decision (ie, the DAB decision that a binding but non-final DAB decision ordering the payment of a specified sum does give rise to an immediate obligation on the paying party’s part to promptly pay that sum) being subsequently referred to arbitration (under cl 20.6 if an NOD is issued and no amicable settlement under cl 20.5 is reached, or under cl 20.6 read with cl 20.7 if no NOD is issued), or to the issuance of an arbitral award which affirms the later DAB decision.
[64] The real question then is whether it is essential to first go through the process of referring a dispute over the “binding” effect of a binding but non-final DAB decision – ie, a DAB decision in respect of which an NOD has been issued – back to the DAB under cl 20.4 and then through a further process of amicable settlement under cl 20.5 before referring it to arbitration under cl 20.6.
[65] Mr Christopher R Seppälä (“Mr Seppälä”), who assisted FIDIC in drafting the predecessor of cl 20.7 of the 1999 Red Book (ie, cl 67.4 of the 1987 edition of the Red Book (“the 1987 Red Book”)) – the sub-clause which has given rise to much of the confusion – has argued that this is unnecessary. In his article entitled “Sub-Clause 20.7 of the FIDIC Red Book does not justify denying enforcement of a ‘binding’ DAB decision” (2011) 6(3) CLInt 17, he opines that a failure to comply with a binding but non-final DAB decision can be referred directly to arbitration. In such a case, there is no need for the receiving party in whose favour the DAB has ruled to refer its dispute with the paying party over the latter’s non-compliance with the binding but non-final DAB decision to the DAB for a further decision by the DAB prior to commencing arbitration. Mr Seppälä observes that in most cases, the party that issued the NOD (usually the paying party) would have referred the merits of the DAB decision to arbitration, and its failure to promptly comply with the DAB decision can then be dealt with as an issue within that arbitration (at p 19). Mr Seppälä appears to take the view that the NOD which is issued by the paying party in respect of the substantive merits of the DAB decision is sufficient to permit the receiving party to refer its dispute with the paying party over the latter’s non-compliance with that DAB decision to arbitration. This is evident from the following excerpt from his article (at p 20):
[66] In our judgment, the position that Mr Seppälä has argued for is self-evidently sensible for several reasons:
(a) First, in cases where an NOD has been issued such that the DAB decision concerned remains binding but non-final, it is important to be precise as to what the real difference between the parties is. This can be explained by reference to the facts in the present appeals. When the dispute emerged between PGN and CRW over the matters that would later become the subject matter of DAB No 3, it was referred to the DAB. The explicit decision in DAB No 3 was that the Adjudicated Sum was payable by PGN to CRW. But, in our judgment, there was also an inherent premise embedded within that decision, which is that the Adjudicated Sum was payable forthwith. If, for any reason, the DAB had intended that its decision ordering payment of the Adjudicated Sum should only take effect later, it would have had to make this explicit; otherwise, it seems indisputable to us that DAB No 3 also required the Adjudicated Sum to be paid forthwith by PGN to CRW. When PGN then issued its NOD, it undoubtedly meant to convey its dissatisfaction both with the explicit premise of DAB No 3 (namely, the valuation by the DAB of CRW’s claims) as well as with its inherent premise (namely, that the Adjudicated Sum was payable forthwith). If and to the extent this was not made clear on the face of PGN’s NOD itself, it was undoubtedly made clear in the positions that PGN took in the 2009 Arbitration as well as in the 2011 Arbitration. In our judgment, this understanding of the true nature of the difference between the parties – namely, as comprising two facets, one explicit and the other, inherent – is reflected in Mr Seppälä’s statement in the extract reproduced at [65] above that:
The point, in essence, is that the dissatisfaction expressed in an 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. This also follows as a matter of logic: after all, what purpose can it serve to ask a DAB whether a decision which it has already issued requiring one party to make payment to the other should be promptly complied with? Why else would the DAB have issued its decision in the first place? In this regard, it bears reiteration that cl 20.4[4] of the Conditions of Contract explicitly states that the parties “shall promptly give effect” [emphasis added] to a binding but non-final DAB decision. The contrary argument – namely, that a DAB decision need not be complied with once an NOD has been issued in respect of it – seems to us to assume a surreal quality. The purpose of a DAB is to render interim decisions that bind the parties until an amicable settlement of their dispute is reached or an arbitral award that resolves the underlying merits of their dispute is made; and the simple point is that given the scheme of the Conditions of Contract as we have analysed it at [55]–[57] above, any requirement to refer a question as to the immediate binding effect of a binding but non-final DAB decision back to the DAB seems to us not only wholly superfluous, but also contrary to the express words of cl 20.4[4].
(b) Second, the receiving party would encounter a number of practical difficulties if it is required to go through the steps set out in cll 20.4 and 20.5 before it can refer the paying party’s non-compliance with a binding but non-final DAB decision to arbitration. As noted by the Judge at [45] of Persero HC (2014), there would be an inordinate delay. The receiving party would have to wait up to 84 days (or such other period proposed by the DAB and agreed to by the parties) for the DAB to render its decision on the separate dispute as to whether the earlier binding but non-final DAB decision is to be complied with promptly, plus another 28 days from the date of receipt of the later DAB decision (answering the question of whether the paying party has an obligation to promptly comply with the earlier binding but non-final DAB decision) to see whether that decision becomes “final and binding” by virtue of no NOD being issued within the stipulated 28-day period. If either party issues an NOD within the permitted time frame, a further 56 days would have to pass to enable the parties to attempt to amicably settle their dispute over the paying party’s non-compliance with the earlier (binding but non-final) DAB decision. Given the purpose and context of the DAB scheme, it would not be commercially sensible to interpret cl 20 as requiring the receiving party to satisfy the conditions precedent in cll 20.4 and 20.5 before it can refer a dispute over the paying party’s non-compliance with a binding but non-final DAB decision to arbitration.
[67] This view is endorsed by FIDIC itself. FIDIC issued a Guidance Memorandum for users of the 1999 Red Book on 1 April 2013 (“the FIDIC Guidance Memorandum”), where it set out its view on how it intended cl 20 to be interpreted. It stated:
[68] In our judgment, it is significant that the FIDIC Guidance Memorandum is directed at “mak[ing] explicit” the identical point which we have canvassed above at [64]–[66], namely, that it is unnecessary to go through the process set out in cll 20.4 and 20.5 before referring a failure to comply with a binding but non-final DAB decision to arbitration under cl 20.6. We do not consider that this approach would extend the scope of the arbitration agreement set out in cl 20.6 at all because it is already possible to refer a failure to honour a binding but non-final DAB decision to arbitration for the reasons we have set out at [61]–[63] and [66(a)] above. Rather, the real issue is over the necessity to go through the preliminary steps set out in cll 20.4 and 20.5 before commencing arbitration. In this regard, FIDIC opted (in our judgment, wisely and sensibly) to “make explicit the intentions of FIDIC” that are already implicit in the cl 20 dispute resolution framework for the reasons we have articulated. Moreover, the FIDIC Guidance Memorandum itself, in the section entitled “Background”, makes it clear that it is intended to clarify a point that many arbitral tribunals have found to be “unclear”:
[69] This is hardly the language of extension. It is true that in its guidance memorandum, FIDIC suggested that cl 20.7 (among other provisions of the 1999 Red Book) be amended, but this does not alter the fact that FIDIC’s proposed amendment to cl 20.7 is aimed at clarifying, rather than changing, its existing position and intention in relation to the dispute resolution framework under cl 20. The inquiry cannot end at FIDIC’s proposed amendment to cl 20.7. The real question is whether FIDIC intended (via its guidance memorandum) to recommend changes to the substantive position under cl 20. The FIDIC Guidance Memorandum in fact makes it clear that the issuance of the memorandum was driven by the lack of a consistent understanding of FIDIC’s intention (including on the part of our courts, culminating in the decision in Persero CA). In our judgment, this is inconsistent with any intention to change the substantive position under cl 20. Further, we do not in any case think that the absence of the suggested amendment from cl 20.7 of the Conditions of Contract in the present case renders it inappropriate to find, as we do (in line with Mr Seppälä’s contention), that the dispute over PGN’s non-compliance with the DAB’s binding but non-final decision in DAB No 3 was within the scope of the arbitration agreement in the Conditions of Contract. There is certainly nothing in the FIDIC Guidance Memorandum to suggest that FIDIC itself doubted whether, absent this suggested amendment, it would be possible to refer a failure to honour a binding but non-final DAB decision to arbitration directly without the parties having to first go through the preliminary steps set out in cll 20.4 and 20.5.
[70] PGN argues that the Conditions of Contract should not be interpreted with reference to the FIDIC Guidance Memorandum because that was issued after the parties entered into the Contract (which includes, among other documents, the Conditions of Contract). We find no force in this argument. First, it is clear from the careful language which FIDIC adopted in that memorandum that it was merely making “explicit” what was all along implicit in cl 20 itself. As we have already said, we consider, for the reasons we have already set out above, that, indeed, it is implicit in cl 20 that a failure to comply with a binding but non-final DAB decision is capable of being directly referred to arbitration without the need for the parties to first go through the process prescribed by cll 20.4 and 20.5.
[71] One point that seems to have attracted almost universal acceptance in this case, save of course on the part of PGN, is that cl 20.4 (specifically, cl 20.4[4]) evinces a clear intention for parties to promptly comply with a DAB decision, irrespective of any disagreement or dissatisfaction with it. This serves the vital objective of safeguarding cash flow in the building and construction industry, especially that of the contractor, who is usually the receiving party. The intention underlying cl 20.4 would be completely undermined if the receiving party were restricted to treating the paying party’s non-compliance as a breach of contract that sounds only in damages and must be pursued before the available domestic courts.
[72] Such a view is incompatible with the express language of cl 20.4 as well as with the analysis we have set out at [55]–[69] above. In addition, we consider that there are a number of other grave difficulties with such a view, namely:
(a) If the receiving party is confined to seeking damages for being denied sums that are eventually found to be due to it, it would seem that the receiving party has no more than a right to pre-award interest or, perhaps, a claim for financing charges. This would be an unduly – and, in our judgment, an unsustainably – parsimonious construction of cl 20.4 since courts and tribunals will often already have the power to grant pre-award interest or allow claims for financing charges.
(b) Secondly, if the contention is that an order may be made to enforce the obligation to promptly give effect to a binding but non-final DAB decision, but only by the local courts and not by an arbitral tribunal established pursuant to the parties’ contract, that would be a very narrow contention and one that seems implausible. This is because it would suggest that the intention underlying the dispute resolution framework contained in the 1999 Red Book is to carve out from the jurisdiction of the arbitral tribunal all matters relating to the immediate enforcement of binding but non-final DAB decisions and to vest only that specific jurisdiction in the courts, while preserving for the arbitral tribunal the jurisdiction to rule on the merits of such DAB decisions. To our knowledge, it has never been suggested that this was FIDIC’s intention when the predecessor of cl 20 was drafted. Moreover, such a construction fails to explain why a dispute over whether or not a binding but non-final DAB decision is to be immediately complied with cannot be directly referred to arbitration as set out at [61]–[66] above. To say that this is so because such a dispute is not a “dispute” as that term is used in cl 20.4, with respect, flies in the face of what constitutes a “dispute” for the purposes of an arbitration agreement (see Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 at [33]–[34]) as well as what PGN has in fact contended at various stages of this protracted dispute between the parties.
(c) Further, it is not clear whether a claim by the receiving party for pre-award interest or financing charges, on the alternative hypothesis set out at [72(a)] above, would be capable of being brought before the arbitration of the merits of the parties’ underlying dispute has been completed. After all, can it be said that a claim for damages in the form of financing charges or a claim for pre-award interest would accrue before it has been finally determined what is actually due to the receiving party? If not, this would pose a considerable obstacle because such a determination would only take place at the end of the arbitration of the underlying dispute. By then, if the arbitral tribunal rules in favour of the receiving party, he would have an award he can enforce and there would be no need to enforce the DAB decision, which would have been superseded by the award; nor, generally, would there be any need for the receiving party to go to the courts at all in such circumstances.
(d) All of this also wholly undermines any expectation which the receiving party may have of obtaining prompt payment of the sum awarded to it under a DAB decision.
[73] Additionally, in some circumstances, it may be vital that parties promptly comply with a DAB decision. By way of example, Prof Bunni has suggested that in some cases, prompt compliance may be necessary simply to enable a party to continue to participate in the arbitration of the merits of the DAB decision concerned. He puts it in this way at p 278 of the article referred to above at [55]:
[74] Indeed, this is true even aside from such dire circumstances. Given the nature of the building and construction industry, it is of general importance that contractors are paid promptly where the contract so provides. As explained by the Judge at [23] of Persero HC (2014):
[75] In our judgment, cl 20.4 is aimed at addressing precisely these concerns, and cl 20 should therefore be interpreted in a manner which promotes prompt compliance with a DAB decision, including, as noted above (and also by FIDIC), by enabling a failure to comply with a binding but non-final DAB decision to be directly referred to arbitration without the parties having to first go through the steps prescribed by cll 20.4 and 20.5. In this regard, Frederic Gillion has suggested in his article “Enforcement of DAB Decisions under the 1999 FIDIC Conditions of Contract: A Recent Development: CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK” [2011] ICLR 388 (at p 408) that the receiving party should seek an award:
[76] The position, ultimately, is a simple one. An arbitration that settles the merits of a DAB decision will likely take considerable time to determine. In contrast, an arbitral ruling concerning a party’s failure to comply with that DAB decision will almost always be made within a relatively short period of time.
[77] We note that Prof Bunni, in his article cited at [55] above, ultimately concludes that cl 20 of the 1999 Red Book does not entitle a receiving party to refer the paying party’s non-compliance with a binding but non-final DAB decision directly to arbitration without the parties having to first go through the process set out in cll 20.4 and 20.5. He appears to have reached this conclusion on the basis that since cl 20.7 only provides for the enforcement by arbitration of final and binding DAB decisions, binding but non-final DAB decisions are not similarly capable of being enforced by arbitration. He states (at pp 277–278):
[78] Prof Bunni states that cl 20 does not offer the receiving party any solution in cases where the paying party fails to comply with a binding but non-final DAB decision, other than to treat the paying party as being in breach of contract. He acknowledges that this leads to an unsatisfactory situation which is inconsistent with the express wording of cl 20.4 (at p 273):
Therefore, he argues that the “gap” should be remedied, and one suggestion he offers is for cll 20.6 and 20.7 of the 1999 Red Book to be amended so as to expressly allow a receiving party to refer a paying party’s non-compliance with a binding but non-final DAB decision to arbitration without having to first comply with the provisions of cll 20.4 and 20.5 (at pp 281–282). We note that Prof Bunni’s conclusion is based on his interpretation of the effect of the express insertion of cl 20.7 into the Red Book (in the form of cl 67.4 of the 1987 Red Book). We respectfully disagree with him on this and turn to address this point now.
[79] In the article cited at [65] above, Mr Seppälä discusses the effect of the express introduction of cl 20.7. He acknowledges that cl 20.7, which expressly provides for the enforcement by arbitration of final and binding DAB decisions (ie, those in respect of which neither party has issued an NOD within the stipulated time frame), might conceivably be understood to suggest that binding but non-final DAB decisions are not similarly capable of being enforced by arbitration since they are excluded from the scope of cl 20.7. However, he argues that cl 20.7 should not be interpreted in this manner. He undertakes an analysis of the historical reason for the introduction of cl 20.7 (in the form of its predecessor, cl 67.4 of the 1987 Red Book) to support his argument.
[80] In all the editions of the Red Book published prior to the 1999 Red Book, the role presently assigned to the DAB was discharged by the “Engineer”. Disputes had to be referred to the Engineer for decision before they could be referred to arbitration. There was a gap in the version of the Red Book that was published in 1977 (“the 1977 Red Book”), in that there was no mechanism for a receiving party to enforce an Engineer’s decision which had become final and binding save by resort to the local courts. Mr Seppälä observes in his article (at p 19):
[81] While we do not accept Mr Seppälä’s broad and general characterisation of the state of justice generally available in “local” courts and courts in “developing” countries, the passage nonetheless provides a candid explanation for FIDIC’s decision to act.
[82] Clause 67.4 was first introduced in the 1987 Red Book to ensure that a receiving party could refer a paying party’s failure to comply with a final and binding Engineer’s decision to arbitration. Mr Seppälä argues that cl 67.4 and its successor, cl 20.7 of the 1999 Red Book, should not be interpreted to mean that binding but non-final Engineer’s/DAB decisions are not similarly capable of being enforced by arbitration. He states in the article cited at [65] above (at p 20):
It is evident that Mr Seppälä’s views are aligned with those expressed in the FIDIC Guidance Memorandum. In short, cl 20.7 makes perfect sense if one sees it as a mechanism by which the receiving party under a DAB decision that has become final and binding can take steps, where that decision is not complied with, to convert that decision into an internationally enforceable arbitral award even though there is no dispute as to its underlying merits. We thus agree with Mr Seppälä that cl 20.7 was never intended to exclude a receiving party’s right to seek an arbitral award in relation to a paying party’s failure to comply with a binding but non-final DAB decision.
[83] Before leaving this issue, we make some observations on the views expressed by this court in Persero CA at [67]–[68] because our decision here – namely, that a paying party’s failure to comply with a binding but non-final DAB decision is itself capable of being directly referred to a separate arbitration under cl 20.6 – differs from those views. In Persero CA, the court adopted the view that cl 20 contemplated a single arbitration that would deal with all the differences between the parties:
With respect, the suggestion that all the differences between the parties must be settled in a single arbitration fails to adequately appreciate that an NOD issued in respect of a DAB decision is capable of covering the paying party’s dissatisfaction with two different aspects of the DAB decision: (a) the quantum that it is required to pay the receiving party; and (b) the need to make prompt payment of that sum (see [66(a)] above). The dispute over the paying party’s failure to promptly comply with its obligation to pay the sum that the DAB finds it is liable to pay is a dispute in its own right which is capable of being “finally settled by international arbitration”. In our judgment, it is possible to refer that dispute to a separate arbitration.
[84] In the present case, the parties had, by way of the wide Terms of Reference adopted for the 2009 Arbitration, conferred upon the 2009 Tribunal broad authority to not only deal with the issue of whether PGN had to make immediate payment of the Adjudicated Sum awarded under DAB No 3, but also consider the merits of the parties’ Underlying Dispute in the same arbitration. As noted by this court at [43] of Persero CA, under the Terms of Reference for the 2009 Arbitration, the parties had consented to confer on the 2009 Tribunal:
[85] Notwithstanding the broad Terms of Reference for the 2009 Arbitration, the 2009 Majority Arbitrators concluded that they were not required to open up, review and revise DAB No 3. This was because: (a) CRW had limited its claim in the 2009 Arbitration to, essentially, a declaration that PGN had an immediate obligation to pay CRW the Adjudicated Sum and an order for “prompt payment” of that sum (see [8] above); and (b) PGN had not filed a counterclaim, but rather, had couched its request for the merits of DAB No 3 to be “open[ed] up, review[ed] and revise[d]” in the form of a defence to CRW’s claim for immediate payment (see [9] above), which defence was untenable. For these reasons, the 2009 Majority Arbitrators proceeded on the basis that the 2009 Arbitration was “limited to giving prompt effect to [DAB No 3]” [emphasis added] (see [6] of the Final Award). This is evident from the concluding paragraphs of the Final Award, where the 2009 Majority Arbitrators stated:
[86] Unlike the 2009 Majority Arbitrators, the court in Persero CA took the view that it made no difference that PGN challenged the merits of DAB No 3 by way of a defence only. It considered this to be a matter of form rather than substance, and said (at [67] and [88]):
[87] With respect, we disagree with the views expressed at [67] and [88] of Persero CA. As noted earlier at [85] above, in the 2009 Arbitration, the 2009 Tribunal had effectively only been asked to consider whether a dispute over the merits of DAB No 3 could be a defence to CRW’s claim for immediate payment of the Adjudicated Sum. The 2009 Majority Arbitrators held – in our judgment, correctly – that such a dispute could not be a defence. In our judgment, cl 20.4[4] of the Conditions of Contract, on its terms, makes it clear that a dispute over the merits of a DAB decision is not a defence to a receiving party’s claim for prompt payment of the sum awarded to it by the DAB. If PGN wished to challenge DAB No 3, it was incumbent on PGN to pursue that by filing a counterclaim or lodging a fresh request for arbitration. It was simply no defence to CRW’s claim (pursuant to cl 20.4) for immediate payment of the Adjudicated Sum awarded under DAB No 3 to say that an NOD had been issued in respect of that decision. We thus do not think that the 2009 Majority Arbitrators were wrong to proceed on the basis that the 2009 Arbitration was “limited to giving prompt effect to [DAB No 3]” (at [6] of the Final Award) and to turn down, on that basis, PGN’s request that the 2009 Tribunal “open up, review and revise” DAB No 3 on its merits.

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

Laws this judgment relies on

Grounds of decision

Introduction

Background facts

The dispute resolution mechanism under cl 20 of the Conditions of Contract

The DAB decision which PGN rejected

The arbitration in 2009

The first set of enforcement proceedings

The arbitration in 2011

The second set of enforcement proceedings

The decision below

PGN’s case on appeal

CRW’s case on appeal

Our decision

PGN’s applications for leave to adduce further evidence – SUM 5277 and SUM 5985

SUM 5277 – Mr Umar’s second affidavit

SUM 5985 – Mr Umar’s fourth affidavit

Final, interim, partial and provisional awards

PGN’s first argument on appeal

Interpretation of cll 20.4 and 20.6 of the Conditions of Contract