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    11:35 PM Kevin Elbert (Trainee Solicitor, Tan Rajah & Cheah)

    On The Nomenclature And Characterization Of Arbitral Awards: PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2015] 4 SLR 364

        

    The long-drawn dispute between PT Perusahaan Gas Negara TBK (“PGN”) and CRW Joint Operation (“CRW”), which spans over half a decade, has culminated in the latest Court of Appeal decision of PT. Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2015] 4 SLR 364. This Court of Appeal decision clarifies the dispute resolution mechanism under a FIDIC contract, the nomenclature and distinction between interim, partial and final awards, and their enforceability under s 19B of the Singapore International Arbitration Act (“IAA”). Additionally, this decision demonstrates the approach the court adopts to characterize an award. 

    Background

    Parties entered into a contract for the design, procurement, installation, testing and pre-commissioning of a pipeline to convey natural gas from South Sumatra to West Java, Indonesia (“Contract”). The Contract was adapted from the 1999 edition of the FIDIC Red Book.

    The dispute resolution mechanism under the Contract can be summarized as follows:

    a)   If a dispute arises between parties in connection with or arising out of the Contract, either party may refer the dispute to the dispute adjudication board (“DAB”) for its decision.

    b)   The decision of the DAB is binding on both parties, which shall promptly give effect to it, unless and until it shall be revised in an amicable settlement or an arbitral award.

    c)    Either party who is dissatisfied with the DAB’s decision may issue a Notice of Dissatisfaction (“NOD”) to the other party after receiving the DAB’s decision.

    d)   If no NOD has been issued by either party within the stipulated time, the DAB’s decision shall become final and binding upon both parties.

    e)    If an NOD is issued by either party, the parties must first attempt to settle their differences amicably before commencing arbitration.

    f)     In the event arbitration commences, the arbitral tribunal shall have full power to open up, review and revise any decision of the DAB relevant to the dispute.

    Parties referred their dispute over 13 Variation Work Orders to the DAB for adjudication. PGN accepted all these decisions, except the third (“DAB No 3”). PGN then lodged an NOD in respect of DAB No 3.

    In 2009, CRW commenced arbitration proceedings against PGN to compel payment under DAB No 3. The Tribunal in the 2009 Arbitration held in favour of CRW and issued an award to that effect. The Court of Appeal however set aside the award (CRW Joint Operation v PT. Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305) (“2011 Appeal”).

    In 2011, CRW launched another round of arbitration proceedings seeking a final determination that PGN was liable for the sum under DAB No 3 and for an interim or partial award permitting CRW to enforce the DAB No 3 pending that final determination. The Tribunal in the 2011 Arbitration issued an interim award to compel payment by PGN (“Interim Award”).

    CRW obtained leave from the High Court to enforce the Interim Award against PGN, and in response, PGN applied to the High Court to set aside the award (PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) [2014] SGHC 146). PGN argued that the Interim Award falls outside the ambit of s 19B of the IAA as it was only provisional in nature (until the final determination of DAB No 3). The High Court rejected the argument and allowed enforcement on the ground that s 19B of the IAA covers awards that are intended to be “provisional”, in the sense that it would only be effective for a limited time. Further, the High Court held that the Interim Award was final and binding under s19B to give effect to the ‘pay now, argue later’ principle under FIDIC Red Book.  PGN appealed the High Court's decision.

    The Court of Appeal Decision

    PGN’s arguments on appeal essentially repeated its arguments in the High Court. Materially, PGN argued that the Interim Award was inconsistent with s 19B of the IAA because the Interim Award would be “subject to future variation”. 

    In a rare 2:1 split, the majority of the Court of Appeal (in a decision delivered by Menon CJ) (“Majority”) dismissed the appeal. The Majority confirmed that the Interim Award was a final and binding determination under s 19B of the IAA.

    Partial, Interim, Provisional and Final Awards

    In the Majority judgment, Menon CJ distinguished between partial, interim, provisional and final awards. Agreeing with Gary Born’s views on the same issue, Menon CJ observed that the terms “partial award” and “interim award” are often used interchangeably to refer to the same category of arbitral awards. 

    Menon CJ restated the following distinctions.

    1. A “partial” award “finally disposes” part of parties’ dispute, leaving some claims for further consideration in future proceedings.
    2. An “interim” award “decides a preliminary issue relevant to [the] disposing of such claims (e.g., choice of law, liability, construction of a particular provision)”. An “interim award” does not decide on parties’ substantive claim.
    3. A “provisional” award is issued to protect a party from damage during the court of arbitral process, e.g. to maintain status quo or to preserve assets and evidence. The Majority noted that although s 12 of the IAA empowers tribunals to make such orders, s 2 provides that these orders are not to be regarded as awards for the purposes of the IAA.
    4. A “final” award can be understood in three ways:

    (i)  it is an award which resolves a claim or matter in an arbitration with preclusive effect (i.e. the same claim or matter cannot be re-litigated);

    (ii) it is an award that has achieved a sufficient degree of finality in the arbitral seat – where the award is no longer susceptible to being appealed against to being subject to annulment proceedings; and

    (iii)                 it can refer to the last award made which disposes of all remaining claims (this is a “final” award in the sense used in Art 32(1) of the Model Law).

    Interpretation of Clause 20.4 of the Contract

    The Majority considered that Clause 20.4 of the Contract imposed a “distinct contractual obligation on the parties to comply promptly with a DAB decision once it is issued”. This means that the obligation to promptly pay persists regardless of whether the DAB decision is subsequently re-considered. The contractual obligation of prompt payment also operates independently from a party’s right to issue an NOD in the event the party is dissatisfied with the DAB decision. In other words, the issuance of an NOD does not displace the binding (albeit non-final) effect of the DAB decision and parties’ obligation to promptly give effect to it.

    In short, the issue of prompt compliance is a distinct and separate inquiry from the merits of the DAB decision.

    Hence a tribunal would be entitled to make a final determination on the issue of prompt compliance alone if that is all it has been asked to rule on. Further, like in the present case, if the tribunal were to be presented with the issue of non-compliance and merits of the DAB decision, the tribunal can: (i) make an interim or partial award which disposes the first matter (i.e. the issue of prompt compliance), (ii) proceed to consider the second issue (i.e. the issue on the merits of the DAB decision), and (iii) subsequently make a final determination of the underlying dispute between the parties.

    Menon CJ held that the Interim Award was intended to be “finally dispositive” of the “prompt compliance” issue before the Tribunal. Significantly, Menon CJ considered that the Tribunal did not intend for its decision on the “prompt compliance” issue to be varied by future awards notwithstanding the Tribunal’s subsequent statement suggesting that effect. 

    S 19B of the IAA

    Significantly, the Majority decided that, even if the Tribunal contemplated that the Interim Award might subsequently be varied by future awards, this does not render the Interim Award unenforceable under s 19B of the IAA. Menon CJ reiterated the position held in PT First Media TBK v Astro Nusantara International BV [2014] 1 SLR 372 that s 19B provides that all awards rendered by a tribunal would be final and binding – the issues decided under the award would therefore be res judicata, and would not be amenable to revision by the arbitral tribunal, and what is proscribed by s 19B of the IAA is a provisional award in the sense of awards rendered to protect a party from damage during the course of an arbitration.

    The Majority considered that the Interim Award does not offend s 19B because it is not a provisional award and the Partial Award merely altered the monetary consequences and effects of the Interim Award. If the Partial Award purports to vary or revise the effect or decision of the Interim Award, it was the Partial Award that would offend s 19B.

    Dissenting Judgment

    Senior Judge Chan Sek Keong dissented from the Majority’s position and allowed the appeal. The main thrust of Chan SJ’s dissent is that the issue of prompt payment is in fact not referable to arbitration under Clause 20.6 of the FIDIC Red Book. After analysing the framework of the Red Book and tracing through the history of its drafting, Chan SJ held that only referable dispute is the dispute on the merits of the DAB decision. The Tribunal therefore had no jurisdiction or power to grant any award in relation to the enforceability issue of DAB No. 3.

    Additionally, Chan SJ found that the Interim Award is “inherently provisional” in nature because it is expressly stated in Clause 20.4 of the Contract to be revisable by an amicable settlement or an arbitral award. Chan SJ opined that the fact that the Tribunal issued the Partial Award to expressly revise the interim award suggests that the Tribunal intended to give the Interim Award provisional effect (in the sense of a provisional award) until the final resolution of the merits of DAB No. 3, the effect of which is similar to the meaning of a “provisional award” under Section 39 of the English Arbitration Act 1996. Hence the Interim Award was in substance a provisional award falling outside the scope of s 2 of the IAA and is therefore not enforceable under s 19B.

    Commentary

    Four points are apposite from this decision.

    First, this case is undoubtedly a welcomed clarification for the operation of the dispute resolution provisions in the 1999 FIDIC Red Book. The decision clarifies that a party has an obligation to promptly pay the amount ordered under a DAB decision. Indeed, the DAB procedure is intended to resolve disputes at first instance, and such decision is amenable to subsequent review by an arbitral tribunal appointed by the parties, but this does not depart from the fact that such decision must be complied with promptly. It is also confirmed that an arbitral tribunal seated in Singapore established pursuant to Clause 20.6 of a FIDIC Red Book contract is empowered to hear and issue an enforceable award compelling a party to pay the sum of money as per a DAB decision.

    Appropriately, the Court expressly disagreed with its earlier decision in the 2011 Appeal. In the 2011 Appeal, the Court of Appeal required all disputes, including the primary and secondary disputes, to be determined in one arbitration. On the contrary, this latest decision expressly allows the tribunal to resolve parties’ disputes in separate proceedings, e.g. to determine the enforcement issue first and then the merits. 

    The decision therefore reinforces the “pay now, argue later” principle under the FIDIC framework to ensure the security of payment on large international projects.

    Second, it is timely that the Court of Appeal clarifies the nomenclature and scope of the different types of arbitral award. This is especially helpful in light of the (sometimes) unconsidered use of terminology to describe awards.

    Of significant interest is the Court’s reiteration of the principle of res judicata underlying s 19B of the IAA. Once an award is issued (be it interim, partial or final), the award is “final and binding” in respect of those issues decided in that award. The tribunal can no longer revise or decide on those issues resolved by that first award in subsequent awards and those issues thereunder would therefore be res judicata.

    In a way, this decision complements the decision of LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2014] 1 SLR 1221, which elucidates the concept of functus officio under s 19B IAA (albeit in obiter). The effect of these two decisions would be that once an arbitral tribunal rendered an award – interim, partial or final – under s19B of the IAA, the tribunal cannot revisit such issues because it would be “partial” functus officio in relation to those issues, and at the same those issues would be res judicata.

    It is a reminder for an arbitral tribunal to ensure that the parties in an arbitration frame a precise list of issues for consideration in an arbitration, and that the issues decided in one award would not be “re-argued” in a subsequent hearing, or re-visited in later awards.

    Third, the approach adopted by the Majority to determine the nature of an award seems to suggest that a characterization of an award is effectively a matter of construction of parties’ contractual arrangement. In the present case, the Majority seems to apply a “purposive” construction of the Interim Award in light of the dispute resolution provision. To facilitate such “purposive” construction, the Majority heavily relied upon commentaries by authorities on the 1999 FIDIC Red Book, such as Mr Christopher R Seppälä who assisted FIDIC in drafting the predecessor of Clause 20.7 of the 1999 Red Book, to determine the operation of the dispute resolution mechanism.

    The premise of the Majority’s decision is its interpretation of the FIDIC framework – that there is an obligation to promptly comply with the DAB decision operating independently of the party’s right to lodge an NOD. With this in mind, the Majority regarded the prompt compliance issue as a distinct issue from the merits issue, which the Tribunal is entitled to adjudicate. Hence, when the Tribunal issued its Interim Award, it is exercising its jurisdiction to render the Interim Award to finally dispose of the prompt compliance issue (as opposed to provisional in nature). This further led to the Majority’s interpretation that the Partial Award’s purported variation of the Interim Award is limited to that of  the quantum of money and not the issue of prompt compliance.

    This is in contrast with the approach taken by Chan SJ, which seems to focus on the wording of the Interim Award and Partial Award. The Interim Award stated that it was an award that would be “final up to a certain point in time” and “will and cannot be altered until the arbitration hearing” (underlining in original). Further, the Partial Award purported to “revise” the Interim Award. Chan SJ held that these facts led to the conclusion that the Tribunal intended to issue, in substance, an alterable and revisable award – that the Interim Award was meant to be provisional and binding on the parties only until the final adjudication of their primary dispute over the merits of DAB No 3.

    However, one limitation of the literal interpretation approach is that it can only accurately characterize an award if the award is precisely drafted. Conversely, if the award is poorly drafted or the arbitrator’s choice of words is not precise, the court would effectively be basing its characterization on something the arbitrators did not put their minds to. Examples of infelicitous diction in the present case include the phrase “final up to a certain point in time” in the Interim Award, which is ambiguous because it does not limit which aspect of the decision the qualification applies to. The Majority decided that it refers to the quantum of money and not the substance of the issue, but the dissenting judgment held that this means that the award is meant to be provisional. Similarly, the Majority opined that the word “revises” in the Partial Award is an inaccurate choice of word, but Chan SJ treated this as revising the Interim Award.

    Fourth, this case demonstrates how the publication of (redacted) arbitral awards could provide guidance to courts and subsequent tribunals in their interpretation of standard form contracts, such as the 1999 FIDIC Red Book. In the present case, in coming to its decision, the Majority extensively relied on an article by Mr. Seppälä (“Enforcement by an Arbitral Award of a Binding but not Final Engineer’s or DAB’s decision under the FIDIC Conditions” [2009] ICLR 414), which in turn heavily referred to ICC Case No. 10619, an oft-cited case for the proposition that an arbitral tribunal may issue an award to enforce a decision of the DAB.

    This shows that the publication of redacted arbitral awards is especially useful to develop jurisprudence constante in relation to the interpretation of standard form contracts.

    Such publication may mitigate the concern that arbitration is creating a “vacuum” in relation to case law on key points of commercial law and standard form contracts that needed to be clarified. Notably, the Lord Chief Justice of England and Wales recently cautioned that there is a real concern on the lack of case law on standard form contracts relating to the construction industry, engineering, shipping, insurance and commodities (The Bailii Lecture 2016 delivered on 9 March 2016, “Developing commercial law through the courts: rebalancing the relationship between the courts and arbitration”, https://www.judiciary.gov.uk/wp-content/uploads/2016/03/lcj-speech-bailli-lecture-20160309.pdf, last accessed 5 April 2016).

    In conclusion, this decision is a timely clarification for the FIDIC dispute resolution mechanism as it applies to arbitrations seated in Singapore. This case is a persuasive authority, even for arbitrations seated outside of Singapore, for the “pay now, argue later” principle and that arbitral tribunals may issue an interim award to compel a party to comply with a DAB decision and such interim award would be enforceable as it is final in respect of the issue of non-compliance by the recalcitrant party. Additionally, this decision also clarifies the nomenclature and scope of the different types of arbitral award. This decision further demonstrates the “purposive” approach that the court would adopt in characterizing an arbitral award.

    * This blog entry may be cited as Kevin Elbert, “On The Nomenclature And Characterization Of Arbitral Awards:  PT. Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2015] 4 SLR 364”, Singapore Law Blog (6 April 2016) (http://www.singaporelawblog.sg/blog/article/155)

    ** A PDF version of this entry may be downloaded here

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