PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) and another matter

1. Vinodh Coomaraswamy J:

2. [1]

   [1] In the two applications before me, PT Perusahaan Gas Negara (Persero) TBK (“PGN”) applies to set aside: (1) a majority arbitral award dated 22 May 2013 issued in favour of CRW Joint Operation (Indonesia) (“CRW”); and (2) an order permitting that award to be enforced as though it were a judgment of the High Court. Having received and considered both parties’ written and oral submissions, I dismissed both of PGN’s applications.

3. [2]

   [2] PGN has appealed to the Court of Appeal against my decision. In brief, it is my view that the majority’s award is entirely consistent with the parties’ contract and with the manner in which that contract was interpreted by the Court of Appeal in earlier litigation between the same parties on the same contract. It is also my view that the majority’s award is not prohibited by Singapore’s international arbitration legislation, whether explicitly or by implication. I now set out the grounds for my decision.

4. Background

5. The parties, their contract and their disputes

6. [3]

   [3] PGN is a listed, state-owned company established under Indonesian law. It owns and operates gas transmission systems in Indonesia. CRW is also an entity established under Indonesian law. It comprises three Indonesian limited liability companies.

7. [4]

   [4] By a contract entered into 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. In early 2008, CRW and PGN found themselves in dispute on a number of variation claims made by CRW under their contract. The parties referred their disputes for decision by a neutral body constituted by their contract for precisely that purpose. That body is known as a dispute adjudication board (“DAB”).

8. [5]

   [5] In due course, the DAB rendered a series of decisions dealing with all of the parties’ disputes. PGN accepted all of the DAB’s decisions except for its decision delivered on 25 November 2008. In that decision, the DAB held that as at 25 November 2008, CRW had “become entitled to” the total sum of US$17,298,834.57. PGN has failed to pay to CRW pursuant to that DAB decision.

9. [6]

   [6] PGN accepts that it has been under a contractual obligation since 25 November 2008 to comply promptly with that DAB decision by paying CRW that sum. PGN further accepts, as it must, that its failure to do so is a breach of contract. I shall refer to the parties’ underlying dispute which forms the subject-matter of the DAB decision as the “primary dispute”. I shall refer to the dispute which arises from PGN’s failure to pay CRW, whether promptly or at all, pursuant to the DAB decision as the “secondary dispute”.

10. [7]

    [7] The phrase “secondary dispute” is convenient for present purposes but is not entirely accurate (see [62] below). That is because PGN’s contractual obligation to pay CRW pursuant to the DAB decision is indisputable and is in fact undisputed. Despite this, PGN submits that the parties’ contract and Singapore’s arbitration legislation does not permit CRW to do anything to enforce that obligation. Counsel for PGN, Mr Philip Jeyaretnam SC, put it this way in the course of argument:

11. [8]

    [8] It is true that one’s sympathies inevitably lie with CRW and not with PGN, whose arguments have evolved over the course of the parties’ protracted dispute. But it is my task to judge the parties’ arguments on their merits and not on my sympathies. It is on the merits that I have dismissed PGN’s applications, for the detailed reasons which follow.

12. The 2009 arbitration

13. [9]

    [9] The parties’ contract contains an arbitration agreement. CRW has made two attempts through arbitration to compel PGN to pay the sum awarded by the DAB. CRW’s first attempt was an arbitration commenced in 2009. That attempt failed. Its second attempt is an arbitration commenced in 2011. It is from this 2011 arbitration that the two applications before me arise.

14. [10]

    [10] For a variety of evolving reasons, PGN has maintained throughout the 2009 arbitration, throughout the 2011 arbitration and throughout all the associated litigation (including the two applications now before me) that it cannot be compelled to comply promptly with the DAB decision unless its primary dispute with CRW has been heard and determined on its merits and with finality.

15. [11]

    [11] In the 2009 arbitration, CRW placed before the tribunal only the secondary dispute and sought as relief a final award compelling PGN to pay it the sum awarded by the DAB decision. PGN’s principal argument before the 2009 tribunal was that the parties’ arbitration agreement does not permit an arbitral tribunal to compel PGN to comply with the DAB decision unless the same arbitral tribunal in the same arbitration goes on to hear and determine the primary dispute on the merits and with finality.

16. [12]

    [12] By a majority, the 2009 tribunal rejected PGN’s argument. The majority issued what it described as a “Final Award” requiring PGN to comply with the DAB decision and noting expressly that PGN was at liberty to commence a separate arbitration to have the primary dispute heard and determined on the merits. PGN applied to the High Court to set aside that final award. The High Court in 2010 agreed with PGN that that award should be set aside. CRW appealed to the Court of Appeal against the High Court’s decision. The Court of Appeal in 2011 dismissed CRW’s appeal. The result is that CRW’s attempt through the 2009 arbitration to compel PGN to comply with the DAB decision has failed.

17. The 2011 arbitration

18. [13]

    [13] Rebuffed but undaunted, CRW commenced the second arbitration in 2011. In the 2011 arbitration, CRW adjusted its approach specifically to meet PGN’s earlier argument. It did so by placing before the 2011 tribunal both the primary dispute and the secondary dispute. In response, PGN adjusted its argument to meet CRW’s new approach. This time, PGN argued that the parties’ arbitration agreement and Singapore’s international arbitration legislation do not permit an arbitral tribunal to compel PGN to comply promptly with the DAB decision unless the same arbitral tribunal– in the same award and not merely in the same arbitration – also hears and determines the primary dispute on the merits.

19. [14]

    [14] The 2011 tribunal has, by a majority, rejected PGN’s argument. It has therefore issued an interim or partial award compelling PGN to comply with the DAB decision. CRW has obtained leave to enforce that award against PGN as though it were a judgment of the High Court. PGN applies now to set aside the 2011 tribunal’s interim or partial award and, with it, the order permitting CRW to enforce that award. PGN makes these applications even though: (1) the majority’s award simply requires PGN to pay promptly a sum to CRW now which PGN accepts it has been obliged to pay promptly to PGN since 2008; and (2) the 2011 tribunal fully intends to go on to hear and determine the primary dispute on the merits and with finality in the same arbitration.

20. Arguments and issues

21. PGN’s arguments

22. [15]

    [15] Mr Jeyaretnam puts the central issue before me in the following way:

23. [16]

    [16] PGN’s arguments on this central issue, put simply, are as follows:

24. (a) The majority in the 2011 arbitration have issued an award which they have described as an interim or partial award but which is in truth a provisional award. It is provisional because the majority intend their interim award to have finality only up until the time the 2011 tribunal hears and determines the primary dispute on the merits and with finality.

25. (b) The International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) does not permit a tribunal to issue a provisional award. As a matter of form, s 2 of the IAA refers only to interim, interlocutory or partial awards and makes no mention of provisional awards. As a matter of substance, and more importantly, s 19B(1) of the IAA (see [109] below) deems every award which a Singapore-seated arbitral tribunal issues – however it may be described – to be final and binding. Finally, the legislative history of s 19B shows an intent not to permit provisional awards.

26. (c) The 2011 tribunal therefore has no power to award CRW provisional relief as it attempted to do: as an award that PGN “shall promptly pay the sum of US$17,298,834.57 as set out in the DAB Decision” to CRW “pending the final resolution of the Parties’ dispute raised in these proceedings” (see [114] below, emphasis added).

27. (d) Section 19B(1) of the IAA deems the majority’s award to be a final and binding award. That overrides the majority’s intent that its award should have only provisional effect. Further, under s 19B(2) of the IAA, no future award can vary the majority’s award. The majority has therefore converted a DAB decision which has only interim finality under the parties’ contract into an award which, under s 19B of the IAA, is final and unalterable. The majority has therefore determined with finality the existence and extent of PGN’s obligation to pay CRW. Further, they have done so without determining or even considering the primary dispute between the parties on the merits.

28. (e) The primary dispute is founded on the same question as the majority have determined in their award: the existence and extent of PGN’s obligation to pay CRW. The majority’s award has therefore inadvertently rendered the primary dispute res judicata. This is contrary to the parties’ arbitration agreement. That agreement requires an arbitral tribunal to hear and determine the parties’ primary dispute on the merits before determining that dispute with finality and making it res judicata.

29. (f) Further, having inadvertently rendered the primary dispute res judicata, the 2011 tribunal has also rendered itself functus officio on the issue of how much PGN must actually pay CRW. The tribunal has no power to inquire any further into the primary dispute to ascertain that amount on the merits. This is despite the 2011 tribunal’s express intention to go on to hear and determine the primary dispute on the merits and with finality in the 2011 arbitration.

30. CRW’s arguments

31. [17]

    [17] CRW’s arguments in response to PGN’s submissions are as follows:

32. (a) CRW is correct to place both the primary and the secondary dispute before the tribunal in the 2011 arbitration and to seek an interim award on the secondary dispute. That approach is consistent with the parties’ agreement as interpreted by the Court of Appeal when it upheld the decision to set aside the final award in the 2009 arbitration.

33. (b) The 2011 tribunal’s interim award is not a provisional award. It is a final and binding award as mandated by s 19B(1) and it will not be varied by the final award in the 2011 arbitration contrary to s 19B(2) (see [109] below). It is final and binding on the secondary dispute pending the final resolution of the primary dispute. And the final award in the arbitration need not and will not vary the interim award because it will determine with finality a different dispute: the primary dispute.

34. (c) The 2011 tribunal is not functus officio because it has determined with finality only one of the disputes placed before it – the secondary dispute – expressly leaving the primary dispute to be heard and determined in a future decision, on the merits and with finality.

35. (d) The arguments put forward by PGN are inconsistent with: (i) the approach which PGN itself suggested that CRW should have taken when PGN made its submissions in the litigation arising out of the 2009 arbitration; and (ii) the way forward for CRW which the High Court and the Court of Appeal endorsed in that litigation.

36. The issues

37. [18]

    [18] The issues which I have to determine are the following:

38. (a) Is CRW’s approach in the 2011 arbitration consistent with the parties’ agreement, and in particular with their contractual dispute-resolution regime?

39. (b) Is the majority’s award in truth a “provisional award”?

40. (c) What effect does the IAA have on the majority’s award?

41. (d) What effect does the majority’s award have on the ability of the 2011 tribunal to consider and determine the parties’ primary dispute on its merits and with finality?

42. (e) Can PGN succeed in setting aside the majority’s award on any of the three grounds raised?

43. [19]

    [19] I deal now with these issues in turn.

44. The contractual dispute-resolution regime

45. Clauses 20.4 to 20.7 of the Red Book

46. [20]

    [20] The contract between CRW and PGN incorporates (with slight and immaterial modifications) a set of standard-form terms and conditions commonly known as “the Red Book”. The Red Book is the first edition of the “Conditions of Contract for Construction” published in 1999 by the International Federation of Consulting Engineers or, as that body is known in French, the Fédération Internationale Des Ingénieurs-Conseils (“FIDIC”).

47. [21]

    [21] The parties have chosen Indonesian law to govern their contract. Neither party has sought, in the applications before me, to prove the content of Indonesian law or to argue that it is different from Singapore law in any respect which is material for my purposes.

48. [22]

    [22] The Red Book’s dispute-resolution regime is found in cl 20 under the heading “Claims, Disputes and Arbitration”. The heart of this regime is cll 20.4 to 20.7. These provisions have two objectives. First, they establish arbitration as the sole method for the parties to resolve their disputes with finality (or as cl 20.6 puts it, for those disputes to be “finally settled”). Second, they establish a contractual security of payment regime, intended to be available to the parties even if no statutory regime exists under the applicable law.

49. The essential features of a security of payment regime

50. [23]

    [23] The central purpose of a security of payment regime is to facilitate the cash flow of contractors in the construction industry. Contractors invariably extend credit to their employer by performing services or providing goods in advance of payment. Contractors are also almost invariably the party in the weaker bargaining and financial position as compared to their employer. A payment dispute between an employer and a contractor takes time and money to settle on the merits and with finality. Doing so invariably disrupts the contractor’s cash flow. That disruption can have serious and sometimes permanent consequences for the contractor. That potential disruption gives the employer significant leverage in any negotiations between the parties for compromise. If the contractor’s payment claim is justified, that disruption and its consequences for the contractor are unjustified.

51. [24]

    [24] A security of payment regime addresses the imbalance between contractor and employer. Its driving principle is the aphorism “pay now, argue later”. When a dispute over a payment obligation arises, the regime facilitates the contractor’s cash flow by requiring the employer to pay now, but without disturbing the employer’s entitlement (and indeed also the contractor’s entitlement) to argue later about the underlying merits of that payment obligation (see Lee Wee Lick Terence (alias Li Weili Terence) v Chua Say Eng (formerly trading as Weng Fatt Construction Engineering) and another appeal [2013] 1 SLR 401 at [2] – [5].)

52. [25]

    [25] To give effect to its central purpose, a security of payment regime implements three essential features:

53. (a) First, it establishes a quick and relatively inexpensive procedure by which a contractor can secure from a neutral body a binding interim adjudication of its right to receive a disputed payment.

54. (b) Second, it gives a successful contractor a quick and relatively inexpensive way of compelling a recalcitrant employer to comply with the interim adjudication.

55. (c) Third, it ensures that the interim adjudication does not in any way preclude the parties from, in the fullness of time, arriving at a resolution of their payment dispute on its merits and with finality.

56. [26]

    [26] The first and second features taken together comprise the “pay now” element. The third feature enables the “argue later” element. All three features taken together give the interim adjudication what is commonly referred to as “interim finality”. This is what distinguishes a security of payment regime from a fast-track dispute-resolution regime with a right of appeal by way of rehearing.

57. The text of cll 20.4 to 20.7

58. [27]

    [27] The text of cll 20.4 to 20.7 appears at [28] below. The two questions to bear in mind when reading these provisions are the following:

59. (a) When a contractor succeeds before the DAB, but either party is dissatisfied with the DAB’s decision, what must the contractor do before it can commence an arbitration to compel the employer to “pay now”?

60. (b) To what extent has the Red Book’s arbitration agreement in cl 20.6 been drafted specifically to accommodate a contractor’s attempt to compel the employer to “pay now”?

61. [28]

    [28] I now set out cll 20.4 to cl 20.7. In doing so, I have numbered each sub-clause in square brackets for ease of subsequent reference.

62. The Red Book’s dispute resolution regime

63. [29]

    [29] Clause 20.6 is an arbitration agreement within the meaning of s 2A of the IAA. It provides that all disputes arising under the Red Book are to be resolved with finality by international arbitration under the arbitration rules of the International Chamber of Commerce (“ICC”). It is important to note that cl 20.6 is the only arbitration agreement available to the parties under the Red Book. It applies to all disputes of whatever nature which arise under the Red Book, whether they are contentious primary disputes or indisputable secondary disputes.

64. [30]

    [30] A party who wishes to refer a dispute to arbitration under cl 20.6 must satisfy three express conditions precedent. The first condition precedent is for either party to submit the dispute in writing to a DAB for determination (cl 20.4[1]). The second condition precedent is that either party must give notice of its dissatisfaction with the determination of the DAB to the other party within 28 days of that determination (cll 20.4[5] and 20.4[6]). The third condition precedent is either that the parties fail to settle the dispute amicably pursuant to cl 20.5 (cl 20.6) or that 56 days elapse from the notice of dissatisfaction without an attempt at amicable settlement (cl 20.5).

65. [31]

    [31] Exceptionally, a party may refer a dispute to arbitration under cl 20.6 if some or all of these three conditions precedent are disapplied. There are only two such situations. First, cl 20.4[5] dispenses with the requirement for a DAB decision if the DAB fails to determine within 84 days the dispute placed before it. Second, cl 20.7 read with cl 20.4[6] dispenses with all three conditions precedent to arbitration if neither party has served a notice of dissatisfaction with the DAB decision.

66. The Red Book’s security of payment regime

67. [32]

    [32] The Red Book’s security of payment regime has broadly the same purpose as our statutory security of payment regime found in the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed). But the Red Book’s regime differs from our statutory regime in two fundamental respects. First, the Red Book’s regime may be invoked in respect of any contractual obligation, not just a payment obligation. The statutory regime is limited to a payment obligation. Second, the Red Book’s regime is available to both the contractor and the employer. The statutory regime is available only to the contractor. It therefore cannot be assumed that every successful claim before a DAB under the Red Book’s regime will result in an obligation owed by the employer to the contractor. It also cannot be assumed that that obligation will in every case be a payment obligation. In that sense, it is not entirely correct to refer to the regime which cll 20.4 to 20.7 establishes as a security of payment regime. However, that is the paradigm and that is the case which has arisen here. For convenience in exposition, therefore, I continue to use the security of payment terminology.

68. [33]

    [33] There is a clear contractual intent in the Red Book’s security of payment regime to implement the three essential features I have identified at [25] above and to compel an obligor to pay now and argue later. The DAB is the neutral body empowered to make the interim adjudication. Clause 20.4[4] obliges an employer who has failed before the DAB to pay now. Most importantly for present purposes, cl 20.4[4] gives the contractor a correlative right to be paid now, without waiting for the final dispute to be resolved with finality. This is a substantive contractual right in and of itself. It is this right which forms the foundation of the secondary dispute. Clauses 20.6[2] and 20.6[3] permit the parties to argue later. Clause 20.4[7] makes the DAB decision final if neither party gives notice of dissatisfaction within 28 days. Clause 20.7 permits a contractor to refer an employer’s failure to comply with a final DAB decision to arbitration without having to comply with the three conditions precedent to arbitration.

69. [34]

    [34] It is an important point that every DAB decision is binding, and that every DAB decision therefore carries interim finality. That is so even if one (or indeed both) parties serve notice of dissatisfaction with that decision. It is therefore a tautology to speak of a binding DAB decision. Every DAB decision entitles the contractor to be paid promptly from the time that decision is made. The only question is whether that DAB decision eventually becomes final (if neither party serves a notice of dissatisfaction within 28 days of the DAB decision (cl 20.4[7])) or does not become final (if either party serves a notice of dissatisfaction within 28 days (cl 20.4[5])). For this reason, I will no longer refer to a DAB decision as “binding”. That is a tautology, and one which is apt to mislead. It implies that the Red Book envisages a non-binding DAB decision. It does not.

70. The central issue revisited

71. [35]

    [35] The answer to the central issue (see [15] above) is unfortunately bedevilled with complication because of two shortcomings in the drafting of cll 20.4 to 20.7. I have foreshadowed those shortcomings in my questions posed at [27] above. Assume a contractor in CRW’s position, that is: (i) a contractor who secures an interim adjudication from the DAB in its favour; (ii) an employer who serves notice of its dissatisfaction with that decision under cl 20.4[5] and who does not “promptly give effect” to it in breach of cl 20.4[4]; and (iii) a contractor who wishes to compel the employer to pay now.

72. [36]

    [36] The two subsidiary questions which expose these shortcomings are:

73. (a) Do the conditions precedent to arbitration continue to apply where the contractor wishes to refer the secondary dispute to arbitration under cl 20.6?

74. (b) When the contractor seeks merely to resolve the secondary dispute, what limits are there, if any, on the power of the tribunal to open up the DAB decision under cl 20.6[2] and on the liberty of the parties to attack the DAB decision under cl 20.6[3]?

75. [37]

    [37] To answer these questions, one can adopt one of two interpretive approaches. I will refer to the two approaches as the “two-dispute” approach and the “one-dispute” approach. Both of these approaches advance the objectives underlying the Red Book’s dispute-resolution regime. Unfortunately, neither approach is wholly satisfactory in advancing the objectives of its security of payment regime. Which of these two approaches to adopt is, broadly speaking, what has divided the two arbitral tribunals and the two courts who have thus far dealt with the parties’ dispute.

76. [38]

    [38] The essential difficulty in answering both subsidiary questions on either interpretive approach arises because cl 20.6 is drafted to resolve the primary dispute and not to resolve the secondary dispute. In other words, cl 20.6 is drafted only to enable the employer to “argue now”. It is not drafted to enable the contractor to compel the employer to “pay now and argue later”.

77. The two-dispute approach

78. [39]

    [39] The two-dispute approach sees the secondary dispute as a “dispute” in its own right within the meaning of cl 20.4[1], and therefore as a separate and distinct dispute from the primary dispute. This conceptual separation means that the two-dispute approach permits a contractor, if it chooses, to refer only the secondary dispute to arbitration under cl 20.6. The ensuing arbitration, on this approach, settles only the secondary dispute with finality.

79. [42]

    [42] There is slight support for the two-dispute approach in cl 20.4[1]. That clause deliberately defines “dispute” as widely as possible. It thereby draws in not only a dispute about the parties’ primary obligations under their contract but also a dispute arising from an employer’s failure to comply with its secondary obligation to give effect promptly to a DAB decision.

80. [43]

    [43] The clearest indication in favour of the two-dispute approach, however, is cl 20.7. That clause is drafted on the basis that the secondary dispute is a separate dispute which can be referred to arbitration separately. If a DAB issues a decision and 28 days pass without either party serving a notice of dissatisfaction under cl 20.4[7], that DAB decision becomes final. Clause 20.7 then operates to permit the contractor to compel a recalcitrant employer to give prompt effect to that DAB decision. Thus, the operative part of cl 20.7 provides that where an employer fails to comply with a final DAB decision, the contractor may “refer the failure itself to arbitration under Sub-Clause 20.6”. Clause 20.7[1] goes on to create an express shortcut to arbitration by exempting that contractor from all three conditions precedent to arbitration established by cl 20.4 and cl 20.5. This exemption would not be necessary unless cl 20.7 adopted the two-dispute approach and viewed the secondary dispute as a separate “dispute”, within the meaning of cl 20.4, and which would otherwise have to comply with the conditions precedent.

81. [44]

    [44] Unfortunately, adopting the pragmatic two-dispute approach runs into several obstacles where cl 20.7 does not apply because the DAB decision is not final. In that situation, the two-dispute approach causes insoluble difficulties with both the “pay now” and the “argue later” aspects of the Red Book’s security of payment regime.

82. [45]

    [45] First, where a DAB decision is not final, the Red Book provides no shortcut to arbitration of the secondary dispute which is equivalent to cl 20.7. That means that a contractor holding a non-final DAB decision and wishing to arbitrate the secondary dispute must comply with the three conditions precedent to arbitration. That in turn means referring the secondary dispute to the DAB (cl 20.4[1]), waiting up to 84 days for the DAB to render its decision on the secondary dispute (cl 20.4[4]), plus another 28 days for the DAB decision on the secondary dispute to become final (cl 20.4[7]) or, if either party issues a notice of dissatisfaction within time, a further 56 days while the recalcitrant employer refuses to discuss amicable settlement of the secondary dispute (cl 20.5[1]). All of this delay is in addition to the time which has already elapsed while complying with the three conditions precedent in respect of the primary dispute. This delay upon delay is directly opposed to the intent of any security of payment regime to give the contractor a quick means of compelling the employer to “pay now”.

83. [46]

    [46] Second and more fundamentally, a contractor who attempts to pursue, as a separate dispute, a secondary dispute which arises from a non-final DAB decision finds itself enmeshed in an infinite recursive loop. Clause 20.6[1] is the only arbitration agreement available to the parties. A dispute outside the scope of cl 20.6[1] is not within the parties’ arbitration agreement and is therefore not arbitrable under it. Only a “dispute in respect of which the DAB's decision (if any) has not become final” comes within cl 20.6[1] (emphasis added). Those words envisage that every “dispute” which goes to arbitration under cl 20.6 must be preceded by a DAB decision in respect of that “dispute”. That appears to be so whether the dispute is in respect of the employer’s breach of a primary obligation under the Red Book or of its secondary obligation to give prompt effect to a DAB decision. The words “if any” appearing in cl 20.6[1] do not constitute a general exemption from the obligation to secure a DAB decision in respect of a dispute before that dispute falls within the parties’ arbitration agreement under cl 20.6[1]. Instead, those words are apt to accommodate specific exemptions established elsewhere. There are only two such exemptions, neither of which is available as of right to a contractor holding a non-final DAB decision. The first exemption is cl 20.4[5] which permits a dispute to be referred directly to arbitration if the DAB fails to give its decision within 84 days after that dispute is referred to it. The second exemption is cl 20.7 which applies if – and only if – the DAB decision from which the dispute arises is final. There is no equivalent to cl 20.7 which overrides cl 20.4[1] and brings the secondary dispute within the parties’ arbitration agreement if the DAB decision is not final. The parenthetical “if any” in cl 20.6[1] is not apt in and of itself to perform that task.

84. [47]

    [47] This requirement to comply with cl 20.4[1] would not be a problem if there were a base case in cll 20.4 to 20.7 in which a contractor holding a non-final DAB decision could at some point proceed straight to arbitration without referring a secondary dispute back to the DAB for a further decision under cl 20.4[1]. But there is no such base case. On the two-dispute approach, so long as an employer serves successive notices of dissatisfaction – whether for tactical or genuine reasons – the contractor has an obligation to refer the successive secondary disputes which arise once again to the DAB. The result of adopting the two-dispute approach therefore is to compel the contractor to secure an infinite series of DAB decisions, each of which is not complied with, but none of which gets the contractor any closer actually to commencing an arbitration to compel the employer to “pay now”.

85. [48]

    [48] Applying the two-dispute approach to a non-final DAB decision is thus inconsistent with the “pay now” feature of a security of payment regime. It is also inconsistent with the “argue later” feature of a security of payment regime. This is because the parties’ arbitration agreement in cl 20.6 is drafted with only the primary dispute in mind. But adopting the two-dispute approach means that cl 20.6 is required to resolve with finality not just (i) an arbitration involving a primary dispute alone, but also (ii) an arbitration involving a secondary dispute alone; and (iii) an arbitration involving both a primary dispute and a secondary dispute. The two-dispute approach thus forces the Red Book’s one-size-fits-all arbitration agreement in cl 20.6 to deal in like terms with three fundamentally different dispute configurations.

86. [49]

    [49] The difficulty arises because cl 20.6 gives the employer and the tribunal the right to open up the DAB decision in every arbitration, even one which is concerned only with the secondary dispute. Thus cl 20.6[2] gives the arbitral tribunal the express power to open up, review and revise a decision of the DAB. Further, cl 20.6[3] gives the parties the liberty to raise before the tribunal evidence or arguments which were not put before the DAB or which do not appear in the notice of dissatisfaction. It is undoubtedly correct that the parties should be able to invoke these clauses without restriction when a tribunal is determining the primary dispute on the merits and with finality. These clauses dovetail with cl 20.4[4] and reflect the fact that a DAB decision, after all, is intended to carry only interim finality. But there are no express or implied contractual limits on the tribunal’s power under cl 20.6[2] and on the parties’ liberty under cl 20.6[3]. That is because cl 20.6 is drafted only with determination with finality in mind and even then only of the primary dispute. It therefore does not need to envisage that the arbitral tribunal should ever decline to exercise its power under cl 20.6[2] or that the parties should ever be barred from invoking the liberty under cl 20.6[3].

87. [50]

    [50] Indeed, the requirement in cl 20.6[1] that the outcome of every arbitration under cl 20.6 be a resolution of the dispute before it with finality suggests that an arbitral tribunal can never legitimately reject an employer’s invocation of cl 20.6[2] and cl 20.6[3] in any arbitration under cl 20.6. It is true that cl 20.6[2] and cl 20.6[3] are cast as a power of the tribunal and a liberty of the parties. It could thus be argued that the full inquiry into the primary dispute which these two clauses envisage is therefore not a necessary part of every arbitration under cl 20.6. So, the argument would go, an arbitral tribunal which has before it only the secondary dispute ought to exercise its discretion to decline to exercise its power under cl 20.6[2] and to shut out a party’s attempt to exercise the liberty given by cl 20.6[3] when it settles only the secondary dispute with finality.

88. [51]

    [51] The problem with that view is that cl 20.6 offers no contractual basis for a tribunal legitimately to shut out an inquiry into the primary dispute in any arbitration under cl 20.6, whether the dispute being arbitrated is only the primary dispute or only the secondary dispute. That omission cannot be interpreted as giving the tribunal a completely unfettered discretion to disregard an invitation to inquire into the primary dispute. Indeed, if the sole dispute before the tribunal is the primary dispute, the tribunal could never justifiably reject an invitation to go behind the DAB decision and inquire into the primary dispute. These provisions, despite being cast as a power and a liberty, create in substance an obligation binding the tribunal whenever it settles any dispute with finality under cl 20.6.

89. [52]

    [52] These clauses therefore cause acute difficulty when only the secondary dispute is before the tribunal. For the Red Book’s security of payment regime to work, there must be no possibility of inquiry into the primary dispute when a tribunal considers the secondary dispute alone. In that situation, cll 20.6[2] and 20.6[3] fail entirely to defer arguments on the merits of the primary dispute. The crucial flaw in cl 20.6 is that it does not specify expressly or even by necessary implication any circumstances in which cll 20.6[2] and 20.6[3] cannot be invoked and an employer thereby compelled to “argue later”. Clause 20.6 therefore permits a recalcitrant employer to invoke either or both of these clauses in every arbitration under cl 20.6, even if that arbitration involves only the secondary dispute. So long as what the arbitral tribunal is doing is determining the dispute before it with finality, the employer has a compelling argument that the tribunal cannot legitimately shut it out and must therefore proceed under cl 20.6[2] and cl 20.6[3] to open up the DAB decision and inquire into the merits of the primary dispute.

90. [53]

    [53] Given that cl 20.6 imposes no contractual restriction on the employer’s right to invoke cll 20.6[2] and 20.6[3] in any arbitration under cl 20.6, there are only three possibilities where the only dispute placed before the tribunal is the secondary dispute:

91. (a) First, assume that the employer fails to invite the tribunal to proceed under cl 20.6[2] and cl 20.6[3] and inquire into the primary dispute before issuing its final award on the secondary dispute, even though it has in every arbitration the right to do so. In this situation, the contractor will have a compelling argument that the employer is precluded from “arguing later” about the primary dispute once the secondary dispute has been settled with finality through an award issued under cl 20.6. This compelling argument arises because of the doctrine of abuse of process, or as it is sometimes known, the extended doctrine of res judicata. This doctrine prevents, in the absence of special circumstances, a party from pursuing in subsequent litigation against the same parties a claim or issue which it could and should reasonably to have raised in earlier litigation. This doctrine is not limited to claimants. It is also not limited to claims. And it is not limited to litigation. It extends to prevent, in the absence of special circumstances, even a respondent from raising in subsequent proceedings a cross-claim (which includes a counterclaim) which it ought reasonably to have raised in an earlier arbitration: see Denmark Skibstekniske Konsulenter a/s I Likvidation (formerly known as Knud E Hansen A/S) v Ultrapolis 3000 Investments Ltd (formerly known as Ultrapolis 3000 Theme Park Investments Ltd) [2011] 4 SLR 997 at [37] – [41] citing with approval at [35] Goh Nellie v Goh Lian Teck [2007] 1 SLR(R) 453 at [53] per Sundaresh Menon JC (as the Chief Justice then was).

92. (b) Second, assume that the employer exercises its right and asks the tribunal to proceed under cl 20.6[2] and cl 20.6[3] and inquire into the primary dispute before issuing its final award on the secondary dispute and the tribunal declines to do so. In this situation, the contractor will again have a compelling argument that the employer is precluded by the doctrine of abuse of process from “arguing later”. However, in this case, the preclusion arises not through any fault of the employer’s but through the tribunal’s refusal to proceed under cll 20.6[2] and 20.6[3].

93. (c) Third, assume that the employer invites the tribunal to proceed under cl 20.6[2] and cl 20.6[3] and resolve the primary dispute before issuing its final award on the secondary dispute and the tribunal accepts the invitation. This defeats entirely the “pay now, argue later” objective of the security of the payment regime.

94. [54]

    [54] The result of adopting the two-dispute approach is that if a contractor arbitrates only the secondary dispute against an employer, the employer’s right to “argue later” is illusory. For all practical purposes, the employer must raise the primary dispute as a cross-claim or counterclaim in that arbitration and the tribunal must permit it to do so. Otherwise, the contractor can successfully argue that the employer is precluded from “arguing later”.

95. [55]

    [55] Adopting the two-dispute approach is inconsistent with the “argue later” feature in another way. Clause 20.6 expressly provides that the parties’ dispute “shall be finally settled” by an arbitration. The phrase “finally settled” is not defined. Applying the dictionary definition of “final” and of “settle”, cl 20.6 stipulates that the arbitration must resolve the parties’ dispute at the end of a series of processes, by a result which is reached or designed to be reached as the outcome of that series of processes, and which allows no further doubt or dispute. Clause 20.6 thus requires the outcome of every arbitration in every case to be an award which precludes any future revision. That is so even if the arbitration encompasses only the secondary dispute. Assume now that a contractor places only the secondary dispute before an arbitral tribunal and the tribunal renders a final award on that dispute. The outcome is inevitably contrary to the interim finality which the DAB decision is intended to have. If the final award upholds the DAB decision without inquiring into the primary dispute, the result is to give the DAB decision immutable (and not merely interim) finality. If the tribunal renders a final award which does inquire into the merits of the primary dispute, the result is to deny the DAB decision any finality at all.

96. [56]

    [56] The alternative is for a tribunal which is considering only the secondary dispute to conclude the arbitration not with an immutable final award but with some sort of an “interim” final award which anticipates and permits a future tribunal to render a future final award on the primary dispute. An “interim” final award would not only be an oxymoron but would, more importantly, not finally settle parties’ dispute as required by cl 20.6.

97. [57]

    [57] Adopting the two dispute approach, in light of the drafting of cll 20.4 to 20.7, makes it far too easy for an employer to frustrate the “pay now” aspect of the security of payment regime and to claim legitimately that settling the secondary dispute alone with finality without hearing the employer on the merits of the primary dispute precludes it from “arguing later” about the primary dispute. The problem is made worse by the tactical incentives for the employer. An employer who has served notice of dissatisfaction and who is defending a claim by a contractor on only the secondary dispute has every incentive at every stage of that arbitration to invoke cl 20.6[2] and cl 20.6[3] and to conflate the secondary dispute with the primary dispute. Any employer who did not have that incentive would have simply complied with the DAB decision, and no secondary dispute would have arisen in the first place. That sort of tactical behaviour may be deprecated, but it is entirely predictable and must be drafted against. But it is not.

98. The one-dispute approach

99. [58]

    [58] The one-dispute approach is the alternative interpretive approach to cll 20.4 to 20.7. Its advantage is that it permits the drafting of the Red Book’s dispute-resolution regime to be reconciled with its contractual intent to create a working security of payment regime.

100. [59]

     [59] The starting point for the one-dispute approach is that the Red Book’s dispute-resolution regime could not have intended “dispute” in cl 20.4[1] to be given a recursive definition with the attendant unworkability (see [46] above). The one-dispute approach therefore interprets “dispute” as meaning only a primary dispute: a dispute about the parties’ primary obligations under their contract. “Dispute” does not mean a subsidiary dispute which arises within or about the dispute-resolution regime once it is invoked. In short, on the one-dispute approach, “dispute” does not mean a dispute about a dispute. That type of second-order dispute is merely a subsidiary aspect of the primary dispute, and is to be subsumed in and resolved in the very same dispute-resolution procedure invoked to resolve the primary dispute.

101. [60]

     [60] On the one-dispute approach, therefore, once a party refers the primary dispute to the DAB under cl 20.4[1], that is the one and only “dispute” within the meaning of and for the purposes of the Red Book’s dispute-resolution regime. That remains the position even after the DAB has rendered its interim adjudication on the primary dispute and even if one or both parties issue notices of dissatisfaction with that decision. The parties’ dissatisfaction with the DAB’s decision on the primary dispute is simply another aspect of that primary dispute. So too if a recalcitrant employer breaches its obligation to give prompt effect to that DAB decision under cl 20.4[4], that breach is simply another aspect of that primary dispute. That breach, and the secondary dispute it gives rise to, is not a separate “dispute” within the meaning of cl 20.4[1].

102. [61]

     [61] The immediate advantage of the one-dispute approach is that pursuing the secondary dispute through arbitration no longer calls for the recursive application of the dispute resolution regime (see [47] above). Because the secondary dispute is not a separate dispute within the scope of cl 20.4[1]: (a) there is no need to refer the secondary dispute to the DAB for decision before arbitrating it under cl 20.6; and (b) there is no need to find an express exemption which permits the secondary dispute to be referred directly to arbitration under cl 20.6. The secondary dispute goes straight to arbitration because it is an integral part of the primary dispute, and because the conditions precedent for the primary dispute have been satisfied. The fact that the secondary dispute does not come within cl 20.7 because it arises from a non-final DAB decision ceases to be the problem that it is under the two-dispute approach.

103. [62]

     [62] The one-dispute approach is consistent with the ordinary meaning of the word “dispute” as a disagreement or argument. Clause 20.4[4] makes every DAB decision binding without exception and without reservation or qualification. There is simply no contractual ground on which a recalcitrant employer can disagree or argue about its obligation to give prompt effect to a DAB decision. So when an employer does not give prompt effect to a DAB decision, that is a breach or a failure to comply (in the language of cl 20.7[1](c)), but it is not strictly speaking a dispute. The employer can, of course, dispute the DAB’s reasons for arriving at its decision. It raises that dispute by serving a notice of dissatisfaction under cl 20.4[5]. It is thereafter free to have that dispute resolved by arbitration under cl 20.6 in the fullness of time. But on the one-dispute approach, the Red Book in no way allows an employer to create a “dispute” about its obligation to give prompt effect to a DAB decision by attacking the reasons underlying that decision. For yet a stronger reason, an employer does not, and indeed cannot, create a “dispute” about its obligation to give prompt effect to a DAB decision simply by breaching that obligation.

104. [63]

     [63] There are two difficulties with the one-dispute approach, one textual and one structural. The textual difficulty is that cl. 20.4[1] clearly indicates an intent to give “dispute” as wide a meaning as possible, particularly by including the parenthetical words “of any kind whatsoever”. That difficulty can, however, be dissolved by recognising that even if the word “dispute” is intended to have the widest possible meaning, that wide meaning is nevertheless constrained by the bounds of the word’s ordinary meaning of a disagreement or an argument.

105. [64]

     [64] The structural difficulty is more problematic. It arises because of cl 20.7. Clause 20.7 adopts and endorses the two-dispute approach and is wholly inconsistent with the one-dispute approach. As I have pointed out above (see [43]), cl 20.7 is drafted on the basis that the secondary dispute which arises from non-compliance with any DAB decision, whether final or non-final, is a dispute in its own right. On that basis, it goes on expressly to exempt a secondary dispute from the three conditions precedent to arbitration if the secondary dispute arises from a DAB decision which is final. Clause 20.7 implies that a contractor holding a non-final DAB decision must also treat the employer’s failure to comply with it as a separate dispute and not merely as an aspect of the primary dispute.

106. Cl 20.7 causes problems even where a DAB decision is final

107. [65]

     [65] The only way to avoid this interpretive difficulty is simply to acknowledge that cl 20.7 is poorly drafted and to ignore its implications when analysing the position of a contractor holding a non-final DAB decision. Although ignoring cl 20.7 is not faithful to the text of cll 20.4 to 20.7, it at least advances the objectives of the security of payment regime which the Red Book so clearly intends to put in place for non-final DAB decisions. This view is supported by the fact that that cl 20.7 is in several respects fundamentally inconsistent with the Red Book’s security of payment regime, even when dealing with a DAB decision which has become final and which is therefore within its scope.

108. [66]

     [66] First, cl 20.7 draws a wholly unhelpful distinction between DAB decisions which have become final and DAB decisions which have not. Clause 20.7 provides an accelerated route to enforce a final DAB decision. But a contractor’s access to that route should not depend on whether that DAB decision has become final. That access ought to be available whenever a DAB decision is binding. But every DAB decision is binding. So every DAB decision should carry an accelerated route to enforcement, not just those which have become final. Yet cl 20.7 provides that accelerated route only for final DAB decisions.

109. [67]

     [67] Second, following on from cl 20.4[7], cl 20.7 envisages that even a notice of dissatisfaction which is served by the contractor is sufficient to prevent a DAB decision from becoming final and to prevent that contractor from having accelerated recourse to arbitration through cl 20.7. It is difficult to understand why that should be so. Assume a contractor who succeeds before the DAB but only in part. Assume further that the employer does not serve a notice of dissatisfaction but still refuses to pay. The contractor may wish to compel the employer to pay promptly and also to pursue through arbitration, as it is entitled to, the part of its claim on which it failed before the DAB. But this contractor fails to qualify for accelerated access to arbitration under cl 20.7 simply because the contractor itself has been compelled by the circumstances to serve a notice of dissatisfaction and even though the employer has not given notice of any dissatisfaction with the DAB decision.

110. [68]

     [68] Third, cl 20.7 fails fully to implement the consequences of permitting a DAB decision to become final. Clause 20.7 does not channel a contractor who comes within it into a bespoke arbitration agreement, modified to account for the fact that the employer has allowed the DAB decision to become final. Clauses 20.4 to 20.7 draw a careful distinction between a DAB decision which is final and one which is not. The purpose of drawing that distinction must be to preclude a party who permits a DAB decision to become final from ever arguing over the primary dispute. But there is nothing in cl 20.6 or cl 20.7 to give effect to that. Channelling the contractor in these circumstances into the unmodified cl 20.6 exposes it to the investigation into the primary dispute which cll 20.6[2] and 20.6[3], in effect, mandate whenever a tribunal resolves the parties’ dispute with finality. It is fundamentally contrary to the Red Book’s contractual intent to permit an employer to invoke these clauses where it has allowed a DAB decision to become final. Yet, that appears to be what cl 20.7 contemplates, at least when read with the one-size-fits-all cl 20.6.

111. [69]

     [69] Fourth, the result of all this is that there is little practical difference between a DAB decision which has become final and one which has not. Where the employer attempts to invoke cll 20.6[2] and 20.6[3] in an arbitration under cl 20.6 involving a final DAB decision, cl 20.7 offers no guidance to a tribunal as to how it should deal with that attempt. It is entirely possible to envisage circumstances in which the employer has a genuine reason, rather than a tactical reason, for trying to open up the DAB decision even though it failed to serve a notice of dissatisfaction. Assume, for example, that the employer can demonstrate to the tribunal an obvious error in the DAB decision, or a compelling reason for the employer’s failure to serve a timely notice of dissatisfaction, or indeed both. It would be a brave tribunal indeed – charged as it is by cl 20.6 with resolving the parties’ dispute with finality – which would shut that employer out from invoking cl 20.6[3]. And that tribunal will find it impossible to distinguish between a meritorious employer and a tactical employer without exercising its power under cl 20.6[2]. All of this is quite contrary to the apparent intent of cl 20.7, but appears unavoidable in practice.

112. The one-dispute approach best supports security of payment

113. [70]

     [70] I am therefore driven to the conclusion that the only way to make the Red Book’s security of payment regime workable, at least for non-final DAB decisions, is to ignore the implications of cl 20.7. That solution, although undoubtedly unsatisfactory, removes the most significant obstacle to adopting the one-dispute approach, which is cl 20.7’s adoption of the two-dispute approach. Adopting the one-dispute approach and applying it to non-final DAB decisions, gives effect in several ways to the essential features of the parties’ contractual security of payment regime.

114. [71]

     [71] First, as I have explained, the one-dispute approach prevents the contractor becoming trapped in an infinite recursive loop (see [46] above).

115. [72]

     [72] Second, the one-dispute approach acknowledges that cl 20.6 envisages one arbitration arising out of one DAB decision which settles with finality all aspects of the parties’ dispute, comprising both the primary dispute and the secondary dispute. I say that cl 20.6 envisages one arbitration because it is not easy to fit a secondary dispute standing alone into the opening words of cl 20.6[1]. Those words define the scope of the parties’ arbitration agreement. That agreement extends only to “a dispute in respect of which the DAB's decision … has not become final”. Those words cannot be interpreted as requiring the contractor to make the secondary dispute the subject of a DAB decision. That interpretation would condemn the contractor to the infinite recursive loop (see [46] above). Further, a secondary dispute is more naturally described as a dispute arising from a DAB decision and not as one “in respect of which” the DAB has made a decision. The tenor of cl 20.6, therefore, is that the secondary dispute should not be detached from the primary dispute, at least where the DAB decision on the primary dispute is not final. All of this suggests that both the primary dispute and the secondary dispute must be resolved together, in a single arbitration, rather than separately as envisaged by the two-dispute approach. If the primary dispute and the secondary dispute are only two facets of a multi-faceted single dispute, then it makes perfect sense that that all facets of that single dispute ought to be dealt with comprehensively and with finality in a single arbitration.

116. [73]

     [73] Third, in the absence of any contractual indication, the one-dispute approach indicates with clarity when in an arbitration an employer may legitimately invoke cll 20.6[2] and 20.6[3] and when it may not. Under the two-dispute approach, there is nothing in cl 20.6 to stop an employer from invoking these clauses on any occasion when the tribunal is determining the dispute before it with finality, even if it is only determining the secondary dispute with finality. By contrast, under the one-dispute approach the employer can invoke cll 20.6[2] and 20.6[3] only when the tribunal determines with finality the primary dispute, but not otherwise. The reason for that is as follows. The one-dispute approach calls for a single arbitration comprising an integrated series of processes aimed at resolving all aspects of the parties’ one dispute with finality. That single arbitration may give rise to any number of awards before it concludes, so long as all of those awards taken together comply with cl 20.6 and determine all aspects of that one dispute on the merits and with finality. If the contractor wishes to compel the employer to “pay now” while the parties wait for the arbitral process to conclude, it can do so by applying to the tribunal for an intermediate award (to use a neutral term) to that effect. That application raises only the secondary dispute, and not the primary dispute. The resulting intermediate award is confined to merely one aspect of the parties’ one dispute, being an aspect which does not engage any aspect of the primary dispute, and does not involve the tribunal resolving the entirety of the parties’ one dispute with finality as envisaged by cl 20.6. Nor will the award bring that single arbitration to a conclusion. In those circumstances, there is simply no scope for cl 20.6[2] and cl 20.6[3] to apply.

117. [74]

     [74] Fourth, the one-dispute approach prevents an employer from behaving tactically and raising the spectre that compelling it to “pay now” on the secondary dispute will somehow preclude it from “arguing later” on the primary dispute. If it is the same tribunal in the same arbitration which will determine both the primary and the secondary dispute with finality, no unfair or unjust preclusion could conceivably arise on the primary dispute. The employer therefore cannot argue that a full investigation of the primary dispute is necessary before it is compelled to “pay now” or that compelling it to “pay now” somehow precludes it from “arguing later” about the primary dispute.

118. [75]

     [75] The one-dispute approach carries only one disadvantage to set against all of these advantages. It forces a contractor who holds a non-final DAB decision to take the initiative in putting the primary dispute before the tribunal even though it typically has no interest in resolving it. But this is a minor disadvantage. If the contractor secures an interim award in its favour on the secondary dispute, it will cease to be a claimant in all but name. The carriage of the remainder of the arbitration will inevitably shift to the employer. This disadvantage is a minor anomaly compared to the substantive and substantial drawbacks of adopting the two-dispute approach.

119. CRW first adopts the two-dispute approach

120. The 2009 arbitration – framing the dispute

121. [76]

     [76] In its notice of arbitration commencing the 2009 arbitration, CRW deliberately placed only the secondary dispute before the tribunal. It therefore sought only the following substantive relief, arising from only the secondary dispute:

122. [77]

     [77] In doing this, CRW acted exactly as a rational contractor would. Only PGN was dissatisfied with the DAB decision. CRW just wanted to compel PGN to pay. It had no interest in commencing any arbitration which involved resolving the primary dispute with finality. CRW therefore took the rational decision to pursue only the secondary dispute. Its notice of arbitration accordingly treated the secondary dispute as a dispute in its own right. CRW’s understandable view was that it was for PGN – as the only party who wanted to open up the DAB’s decision on the primary dispute – to take the initiative to have an arbitral tribunal determine the primary dispute with finality. PGN could do this either by way of counterclaim in the 2009 arbitration or in a separate arbitration. And if PGN refused to do either, it made no difference to CRW because, so it thought, the relief it sought related to the secondary dispute, which was a separate dispute having nothing to do with the primary dispute. The tactical dynamic I referred to at [41] above was at work.

123. [78]

     [78] PGN’s principal defence to CRW’s claim in the 2009 arbitration was a simple but powerful point. Because the tribunal was acting under cl 20.6 – that being the only arbitration agreement between the parties – PGN invited the tribunal to “open up, review and revise” the DAB’s decision on the primary dispute pursuant to cl 20.6[2]. Deliberately and tactically, PGN extended this invitation to the tribunal by way of defence only: it raised no counterclaim to CRW’s claim.

124. [79]

     [79] The majority of the 2009 tribunal rejected PGN’s principal argument and granted CRW the relief it sought. They held that PGN’s invitation to the tribunal to open up, review and revise the primary dispute afforded no defence to CRW’s claim on the secondary dispute (at [51]). That is undoubtedly correct. The employer’s obligation to give prompt effect to a DAB decision is without any contractual qualification. Specifically, and in keeping with the “pay now” objective of a security of payment regime, it ought to be and it is not a defence on the secondary dispute to argue that the primary dispute has not yet been settled with finality. The majority therefore held that CRW’s claim in the 2009 arbitration succeeded and ordered that PGN pay CRW as required under the DAB decision.

125. [80]

     [80] The majority then followed the two-dispute approach to its logical conclusion. They accepted that the secondary dispute comprised the entire subject-matter of the 2009 arbitration. They made a finding that their award to CRW dealt completely with the only dispute that the 2009 tribunal had been constituted to determine. They therefore confirmed that their award was a final award and brought the 2009 arbitration to a close (at [53]). Basing themselves on the two-dispute approach, the majority saw nothing in their award – which dealt with and only with the secondary dispute – which precluded PGN from “arguing later” by initiating a future arbitration against CRW to have the primary dispute settled with finality under cl 20.6.

126. [81]

     [81] In a dissenting award, the minority member of the 2009 tribunal adopted the one-dispute approach. He held that the tribunal should not and could not conclude the 2009 arbitration by rendering a final award compelling PGN to pay CRW based on the DAB decision unless the tribunal at the same time resolved all other aspects of the parties’ single dispute with finality as stipulated by cl 20.6. That to him meant that the tribunal was obliged to permit PGN to invoke cll 20.6[2] and 20.6[3] before it rendered a final, preclusive award on the parties’ one dispute.

127. Appeal to the High Court

128. [82]

     [82] PGN applied to the High Court to set aside the majority award in the 2009 arbitration. Belinda Ang J heard that application. Before Ang J, PGN relied on the one-dispute approach. It argued that cl 20.6 expressly requires an arbitration commenced under it to settle with finality the dispute between the parties. Since there was only one dispute between the parties, comprising both the primary dispute and the secondary dispute, the majority was wrong to have issued a final award ordering PGN to pay CRW in accordance with the DAB’s decision without also settling the primary dispute with finality. On the strength of this fundamental point, PGN submitted that the majority’s award should be set aside on three grounds: (a) because the majority had exceeded its mandate or jurisdiction within the meaning of Art 34(2)(a)(iii) of the Model Law; (b) because the majority had followed an arbitral procedure not in accordance with the parties’ agreement within the meaning of Art 34(2)(a)(iv) of the Model Law; and (c) because the majority had breached the rules of natural justice by refusing to hear PGN on the merits of the dispute underlying the DAB decision within the meaning of s 24(b) of the IAA.

129. [83]

     [83] After a review of the parties’ submissions, of the authorities and of several authoritative commentaries on the Red Book, Ang J set aside the award. But she did so not because she accepted the one-dispute approach. Instead, she accepted CRW’s two-dispute approach, but held that CRW had not satisfied the conditions precedent to arbitrating the secondary dispute. Her judgment is reported as PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] 4 SLR 672 (“PGN v CRW (HC)”).

130. [84]

     [84] Ang J began her analysis by noting that CRW had taken the two-dispute approach in the 2009 arbitration and before her (PGN v CRW (HC) at [4]). She identified as the central question before her the same question as is now before me: whether, and if so how, cl 20 permits CRW to compel PGN to comply with a DAB decision which is not final (PGN v CRW (HC) at [16]). She agreed with CRW that the secondary dispute was a dispute in its own right. One consequence was that it could be detached, as CRW had done, from the primary dispute and resolved by itself in arbitration under cl 20.6. But a second consequence was that it was nonetheless a “dispute” within the meaning of cl 20.4[1]. The result was that CRW could not arbitrate the secondary dispute without referring that secondary dispute back to the DAB under cl 20.4[1] (and presumably fulfilling the other conditions precedent to arbitration).

131. [85]

     [85] She arrived at this view for four reasons:

132. (a) There is a gap in the dispute resolution regime of the Red Book. The default rule in cl 20 is that a contractor must satisfy certain conditions precedent before it can initiate any arbitration under cl 20.6. By way of exception to that general rule, a contractor who holds a DAB decision which has become final is exempted from these conditions precedent by cl 20.7. There is no provision which exempts a contractor holding a DAB decision which is not final from these conditions precedent (PGN v CRW (HC) at [15]). These conditions precedent must therefore be satisfied before the secondary dispute can proceed to arbitration under cl 20.6.

133. (b) This gap has been acknowledged in leading commentaries on the Red Book.

134. (c) This gap in the Red Book was not a by-product of poor or careless drafting but was a deliberate choice by FIDIC:

135. (i) If FIDIC had intended to exempt every contractor from the conditions precedent to arbitration under cl 20.6, regardless of whether the DAB decision in its favour is final, cll 20.7[1](a) and 20.7[1](b) would have been wholly unnecessary. (I have italicised these provisions at [28] above.)

136. (ii) A later FIDIC publication known as the Gold Book permitted every contractor who had in hand a DAB decision which had not been complied with – whether final or not – to proceed immediately to arbitration under the equivalent of cl 20.6 without complying with any conditions precedent. Clause 20.7 in the Red Book was not amended at the same time. That suggests that the distinction drawn in the Red Book was a considered and deliberate decision by FIDIC (PGN v CRW (HC) at [21]).

137. (d) CRW had failed to refer the secondary dispute to the DAB under cl 20.4[1]. The critical condition precedent to arbitration under cl 20.6 was therefore not satisfied.

138. (e) In addition, the secondary dispute was outside the scope of the parties’ arbitration agreement. It was not within the introductory words of cl 20.6[1] because it was not a dispute “in respect of which the DAB’s decision… had become final”. There was no DAB decision at all on the secondary dispute.

139. [86]

     [86] Ang J therefore held that the majority had dealt with a matter falling outside the scope of the arbitration agreement. They had rendered an award which dealt with the secondary dispute when the secondary dispute had not been referred to the DAB and could not therefore properly be put before the 2009 tribunal.

140. [87]

     [87] The result of Ang J’s reasoning is to uphold the two-dispute approach but to hold that a contractor who wishes to separate the two disputes (as that approach permits) and to pursue only the secondary dispute through arbitration must satisfy the conditions precedent in cll 20.4 and 20.5 in respect of that secondary dispute (PGN v CRW (HC) at [37]).

141. [88]

     [88] By way of obiter dicta, Ang J gave an alternative ground for her decision. She held that cl 20.6 is drafted on the clear basis that the end product of every arbitration which takes place under it (save for those not channelled into it through cl 20.7) must be a resolution of the primary dispute with finality. Ang J thus held at [35] of PGN v CRW (HC) that the tribunal had fallen into error in an additional sense. The error was in issuing a final award dealing only with the secondary dispute which had the effect of making the DAB’s decision on the primary dispute final without resolving the primary dispute on the merits and with finality as cl 20.6 so clearly envisages.

142. [89]

     [89] For both these reasons, Ang J set aside the majority’s award under Art 34(2)(a)(iii) of the Model Law on the grounds that the majority had decided a matter going beyond the scope of the submission to arbitration.

143. Appeal to the Court of Appeal

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