16 November, 2011
SUMMARY
As can be seen from the above article, the Singapore courts take a pro-arbitration stance, and will not easily exercise their discretion to set aside an arbitral award. However, where valid grounds exist for setting aside an award and real prejudice is suffered by one of the parties in an arbitration, the courts will not hesitate to exercise their discretion to set aside such an award.
In CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33, the Court of Appeal exercised its discretion to set aside an award where the arbitral tribunal had acted in excess of its jurisdiction, and where there was a breach of the rules of natural justice.
BACKGROUND
PT Perusahaan Gas Negara (Persero) TBK (“PGN”) engaged CRW Joint Operation (“CRW”) to construct a pipeline and an optical fibre cable in Indonesia. The parties adopted the standard provisions of the Conditions of Contract for Construction: For Building and Engineering Works Designed by the Employer (1st Ed, 1999) (“1999 FIDIC Conditions of Contract”) with some modifications.
A dispute subsequently arose between the parties. In accordance with the 1999 FIDIC Conditions of Contract, the parties referred the dispute to the Dispute Adjudication Board (“DAB”) for adjudication.
The DAB ordered PGN to pay CRW the sum of US$17,298,834.57 (“DAB Decision”). Dissatisfied with the DAB Decision, PGN filed a Notice of Dissatisfaction (“NOD”).
PGN refused to make payment to CRW on the basis that the NOD rendered the DAB Decision not yet final and binding.
On 13 February 2009, CRW filed a request for arbitration with the ICC International Court of Arbitration pursuant to sub-clause 20.6 of the 1999 FIDIC Conditions of Contract, for the sole purpose of “giving prompt effect” to the DAB Decision (“Arbitration”).
Sub-clause 20.6 provides the arbitrator with full powers to open up, review and revise any decision of the DAB.
On 24 November 2009, the arbitral tribunal (“Tribunal”) issued a final award in favour of CRW (“Final Award”) and ordered PGN to make immediate payment to CRW.
The Tribunal further held that PGN was not entitled to request the Tribunal to open up, review and revise the DAB Decision as it had not filed a counterclaim seeking for the same. However, the Tribunal reserved PGN’s right to “commence an arbitration to seek to revise [the DAB Decision]”.
On 7 January 2010, CRW obtained a court order from the Singapore High Court to enforce the Final Award in Singapore (“Enforcement Order”).
PGN then filed separate applications to set aside the Enforcement Order and the Final Award pursuant to Art 34(2)(a) (iii) – (iv) of the and section 24(b) of the IAA on grounds that the Tribunal had exceeded their jurisdiction and that the Final Award was made in breach of natural justice.
THE HIGH COURT’S DECISION
The High Court granted PGN’s application to set aside the Final Award largely on the basis that the majority of the Tribunal (“Majority Members”) exceeded their jurisdiction in converting the DAB Decision into a final award without first reviewing the DAB Decision.
CRW appealed.
THE COURT OF APPEAL’S DECISION
The Court of Appeal dismissed CRW’s appeal and set aside the Final Award on the grounds that the Majority Members had exceeded their jurisdiction, and that there had been a breach of natural justice.
Majority Members acted in excess of jurisdiction
The Court of Appeal affirmed the High Court’s decision that the Final Award was made in contravention of sub-clause 20.6 of the 1999 FIDIC Conditions of Contract.
The Court of Appeal clarified that where an NOD has been filed against a DAB Decision, the DAB Decision, while binding between parties, is not a final award because sub-clause 20.6 allows a reopening and review of the merits and correctness of the DAB Decision.
The Court of Appeal held that sub-clause 20.6 required all disputes between parties to be consolidated in a single arbitration. As such, PGN was entitled to raise any issue(s) it required the Tribunal to consider, even if it had not filed a counterclaim in the Arbitration.
The Court of Appeal found that the Majority Members’ issuance of a final award while concurrently reserving PGN’s right to commence a separate arbitration for a review of the merits of the DAB Decision “questionable”. The Majority Members were therefore wrong in rejecting PGN’s request for a reopening and review of the DAB Decision in the same arbitration proceedings.
In order to enforce immediate compliance with the DAB Decision under the terms of the 1999 FIDIC Conditions of Contract, PGN should have commenced arbitration under sub-clause 20.6 for the Tribunal to review and affirm the binding DAB Decision, while also requesting that the Tribunal issue an interim award in the terms of the DAB Decision pending the Tribunal’s final award.
This would allow the Tribunal to ensure immediate compliance with the DAB Decision, without contravening the 1999 FIDIC Conditions of Contract or exceeding its jurisdiction.
Breach of natural justice
The Court of Appeal also found that that there had been a breach of natural justice as PGN was not given an opportunity to defend its position at the hearing as to why the quantum of payment under the DAB Decision was excessive.
Instead, the Final Award was made summarily, without a review of the merits of the substantive dispute between parties.
Court’s residual discretion to refuse to set aside award
In view of the Court of Appeal’s findings that the elements necessary to set aside the Final Award under both Art 34(2)(a)(iii) of the Model Law and section 24(b) of the IAA had clearly been established, the Court of Appeal had to consider whether it ought to exercise its residual discretion to refuse to set aside the Final Award.
The Court of Appeal took the view that the court’s discretion to decline to set aside an arbitration award should only be exercised if no prejudice has been sustained by the aggrieved party.
On the facts, PGN had suffered “real prejudice”. There was therefore no basis for the Court of Appeal to invoke its residual discretion to refuse to set aside the Final Award.
COMMENT
An arbitral tribunal does not have the power under sub-clause 20.6 of the 1999 FIDIC Conditions of Contract to issue a final award without assessing the merits of a party’s defence and of the DAB decision.
The arbitral tribunal’s failure to exercise its obligation to review may result in the Singapore courts setting aside the arbitral award as the arbitral tribunal had acted in excess of its jurisdiction and natural justice had been breached, resulting in a party to the arbitration suffering real prejudice.
This case serves as a reminder that where a valid NOD has been filed against a DAB decision, the DAB decision is not final as it is open to review and amendment by the arbitral tribunal. Therefore, a party seeking to enforce compliance with the terms of the DAB decision should request the arbitral tribunal to review and confirm the correctness of the DAB decision, while concurrently asking for an interim award in the terms of the DAB decision pending the arbitral tribunal’s final and binding decision.
For further information, please contact:
Eugene Tan, Drew & Napier