Singapore Case Update: Direct Enforceability of Interim Arbitral Awards (PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation
 [2015] SGCA 30)

</br>

I.  INTRODUCTION

The enforceability of interim arbitral awards (“Interim Awards”) issued pursuant to Dispute Adjudication Board (“DAB”) decisions has long been an intractable problem that has vexed the arbitral community. PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation
 [2015] SGCA 30, although focused primarily on the Singapore International Arbitration Act (Cap. 143A) (Rev. Ed. 2002) (“IAA”) framework, offers some compelling insights on how this problem might be resolved.

The Singapore Court of Appeal considered the extent of Parties’ obligations apropos the dispute resolution mechanism of an International Federation of Consulting Engineers (“FIDIC”) contract and the DAB thereby contractually constituted. An Interim Award was issued when a disputed DAB decision was referred to arbitration.

In a rare split 2:1 decision, the majority considered Interim Awards as meeting the requirements of final arbitral awards under s 19B IAA. The section necessitates that arbitral awards be “final and binding”, not to be “var[ied], amend[ed], correct[ed], review[ed], add[ed] to or revoke[d]” by a tribunal – “[e]xcept as provided in Articles 33 and 34(4) of the Model Law [i.e. the UNCITRAL Model Law on International Commercial Arbitration]”.

Proceedings to resolve this matter were protracted, reflecting the complexity of this legal conundrum. Litigation first commenced in 2010. A decision from the Singapore Court of Appeal in 2011 (see [2010] 4 SLR 672) setting aside the Interim Award resulted in further arbitration in 2011; subsequent enforcement proceedings in the Singapore High Court; and an appeal by PT Perusahaan Gas Negara (Persero) (“PGN”) to the Singapore High Court – eventually culminating in the present appeal.

<br>

II.  BACKGROUND

In 2006, PGN, an Indonesian company that owns and operates gas transmission systems in Indonesia, contracted the CRW Joint Operation group (“CRW”) to design, procure, install, test and pre-commission a pipeline to convey natural gas from South Sumatra to West Java.

The contract modified and adopted the standard provisions of the 1999 edition of ‘Conditions of Contract for Construction: For Building and Engineering Works Designed by the Employer’ (the “Red Book”), a publication of the FIDIC, and was governed by Indonesian law (the “Contract”).

Clause 20 prescribed the dispute resolution mechanism. This involved, inter alia, stipulations:-

• for the constitution of a DAB, to deliver decisions “binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award” (Clause 20.4);

• that a Party dissatisfied with the DAB’s decision issue a notice of dissatisfaction (“NOD”) within twenty-eight (28) days of receiving the decision (Clause 20.4);

• that, once an NOD was issued, Parties would first attempt to settle their dispute amicably within fifty-six (56) days (Clause 20.5), after which, any dispute could be finally settled by arbitration (Clause 20.6); and

• that, where a DAB decision becomes final and binding because no NOD was issued within the requisite time frame, a Party’s failure to comply may be referred to arbitration directly (Clause 20.7).

In the course of the project, a dispute arose over thirteen (13) ‘Variation Order Proposals’ (“VOPs”) that CRW submitted to PGN for variation works that CRW contended it had carried out (and which PGN denied).

The DAB rendered several decisions on the VOPs, all of which PGN accepted – except for the third (“DAB No 3”), which required PGN to pay CRW a sum of US$17,298,834.57 (the “Adjudicated Sum”). PGN issued a NOD to contest this without waiting for the written grounds of the DAB.

CRW made several futile requests to PGN for payment of the Adjudicated Sum, before commencing the first arbitration in 2009. CRW It sought, inter alia, a declaration that PGN had an immediate obligation to pay and an order for “prompt payment”.

PGN’s defence was that the arbitral tribunal was first required to decide on the merits of the underlying claim at the heart of the DAB’s decision before it could make an award – an argument accepted by the Singapore High Court and Court of Appeal in 2010 and 2011.

CRW then commenced a second arbitration in 2011. CRW now sought, inter alia, (a) a final determination that PGN was liable to pay CRW the Adjudicated Sum and (b) an Interim Award for that same Sum, pending that determination. The tribunal issued this Interim Award and the Singapore High Court gave leave to enforce it. PGN disputed this, in both the Singapore High Court and the Court of Appeal.

<br>

III.  ISSUES FOR THE COURT OF APPEAL

In essence, PGN’s case was that an Interim Award is “non-final” by nature; the “final determination” could vary it. It argued that:-

• an Interim Award was, in effect, a provisional award, contrary to s 19B IAA (as set out above); and

• by enforcing the Interim Award, the Majority arbitrators had acted in excess of their jurisdiction, in breach of natural justice and/or in breach of the Parties’ agreed arbitral procedure set out in Clause 20.4 of the Contract.

 

IV.  DECISION OF THE MAJORITY

The majority of the Singapore Court of Appeal, comprising Chief Justice Sundaresh Menon and Justice Quentin Loh, held that, first, Interim Awards were recognised under the IAA and, second, a Party’s failure to comply with a binding but non-final DAB decision could be referred direct to arbitration.

The commencement of arbitration proceedings apropos PGN’s refusal to pay the Adjudicated Sum, under DAB No 3, was thus compliant with Clause 20 of the Contract – even though PGN had issued an NOD – and the Singapore Courts had the power to enforce the arbitral award.

The Nature of “Interim Awards”

In arriving at this conclusion, the majority distinguished (i) “Partial” or “Interim” Awards, (ii) “Provisional” Awards and (iii) “Final” Awards, adopting the definitions in Gary B Born, International Commercial Arbitration Vol. III (2^nd Edn) (Wolters Kluwer, 2014):-

• “Partial” or “Interim” Awards are “made in the course of proceedings that dispose of certain preliminary issues or certain claims for relief prior to the disposition of all the issues in the arbitration”. Such awards are capable of recognition and enforcement by domestic courts.

Although the two terms are often used interchangeably, the Court observed that (a) “Partial” Awards dispose of “part, but not all, of the parties’ claim”. In contrast, (b) “Interim” Awards do “not dispose finally of a particular claim” but instead decide “a preliminary issue relevant to the disposing of such claims”, such as choice of law or construction of a particular provision.

• “Provisional” Awards are “issued to protect a party from damage during the course of the arbitral process”, such as preserving assets or ordering the provision of security for costs. Such Awards are inherently capable of variation in due course, and do not involve a determination of the substantive rights of parties. They are not capable of recognition and/or enforcement as awards by domestic courts: see s 2 IAA.

• “Final” Awards, interestingly enough, were given three broad but distinct interpretations: as (a) awards which resolve a claim or matter in an arbitration with preclusive effect, a definition which embraces even “Provisional” Awards, (b) awards that have achieved a sufficient degree of finality in the arbitral seat, i.e. no longer appealable, and (c) awards which dispose of all remaining claims.

The majority understood the Interim Award to make “prompt payment” of the Adjudication Sum as “final and binding” in nature. On the basis of the res judicata doctrine, the majority found that the tribunal’s power to make awards on other triable issues not encompassed by the Interim Award was limited. The tribunal could not not “vary, amend, correct, review, add to or revoke” issues determined in this Interim Award. The Court reiterated that the very purpose of s 19B was to ensure “all awards, regardless of the stage of arbitration at which they were made, would have the effect of being final and binding”: see [133]-[142] of PT First Media TBK v Astro Nusantara International BV and others [2014] 1 SLR 372.

Enforcement of DAB Decisions

In interpreting Clause 20.4 of the Contract, the majority held that, first, the onus was on PGN to make good its argument that the contractual stipulation that DAB No 3, on which the Interim Award was predicated, ceased to be binding once an arbitral award was issued meant that the Interim Award should therefore be set aside or unenforceable. The majority found that PGN had not effectively discharged this burden.

Second, the majority reiterated that the merits of the underlying dispute has not been resolved – the Interim Award under the DAB decision, requiring prompt payment of the Adjudicated Sum, remained enforceable. It was capable of direct enforcement, through arbitration.

<br>

V.  DISSENT BY SENIOR JUDGE CHAN 

Senior Judge and former Chief Justice Chan Sek Keong dissented in a 96-page judgment. His Honour disagreed with the majority on both their classification of arbitral awards and construction of Clause 20.4 of the Contract.

Senior Judge Chan determined that an Interim Award was inherently provisional in nature. Awards subject to revision or even nullification following a final determination on the merits of a dispute were “Provisional” Awards: see s 39 Arbitration Act 1996 (UK) (c. 23). It thus (i) fell outside the ambit of an “award” as defined in s 2 IAA, and (ii) was not enforceable under s 19 IAA in the same manner as a judgment.

Further, in reviewing the agreed arbitral procedure, Senior Judge Chan was of the view that, in issuing the Interim Award under Clause 20.6, pending the 2011 Arbitral Tribunal’s final adjudication on the parties’ dispute over the merits of DAB No 3, the 2011 Majority Arbitrators had acted in excess of their mandate.

His Honour found that the dispute as to whether the Interim Award issued under DAB No 3 was directly enforceable by an arbitral tribunal under the Clause 20.6 was a “secondary dispute”, and thus not referrable to arbitration under Clause 20.6 per se. The dispute as to the merits of DAB No 3 was the primary dispute. The DAB decision was only enforceable pursuant to Clause 20.4, i.e. until revision by “an amicable settlement or an arbitral award”.

<br>

VI.  CONCLUDING COMMENTS

The findings of the majority of the Court of Appeal as to the status of “Interim Awards” are a significant departure from the 2011 decision by the same court. The finding that such awards are “final and binding” effectively vanquishes any ambiguity as to their enforceability within Singapore, under s 19B IAA.

Significantly, arbitration practitioners must bear in mind that arbitral tribunals could be legally helpless to vary or amend issues determined by an Interim or Partial award. As the dissenting judgment reflects, this raises fresh difficulties in distinguishing between (i) “Interim” or “Partial” Awards and (ii) “Provisional” Awards in substance. The majority acknowledged that, at the end of the day, the arbitral tribunal remains free to decide on the merits of the underlying matter, even if this may “absolve” a party of its obligation to comply with any such award. There is a real possibility that this could, in effect, ‘revise’ or ‘nullify’ the effect of such award, rendering it “provisional” in the practical sense of the word.

From a construction industry perspective, the majority decision is pragmatic. It offers conclusive affirmation that a party failing to comply with a DAB decision under the FIDIC Red Book can be referred directly to arbitration, consistent with the guidance issued by the FIDIC itself[1]. Parties incorporating the terms of the Red Book will be relieved to find that:-

• procedurally, they need not attempt amicable settlement and wait for the fifty-six (56) day period prescribed to elapse before referring their dispute for arbitration; and

• enforcement-wise, the arbitral award issued – even if “Interim” or “Partial”, pending final determination of the merits of the underlying dispute – is immediately enforceable in the Singapore Courts, under the IAA.

This decision provides important clarification in view of the conflicting and confusing views clouding the international recognition and enforcement of “interim” awards issued by various adjudication bodies. This unhappy state of the law has for too long eroded the finality essential to effective dispute resolution by both complicating proceedings and increasing party costs.

---

This article may be cited as follows: Meera Rajah, “Singapore Case Update: Direct Enforceability of Interim Arbitral Award (PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation
 [2015] SGCA 30)”, International Arbitration Asia (11 August 2015) <http://www.internationalarbitrationasia.com/Direct-Enforceability-of-Interim-Arbitral-Awards>.