31 July, 2012

Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution

The use of Dispute Boards is becoming increasingly common on large and complex projects across the Asia Pacific region. In many cases, Dispute Boards have provided an effective means for parties to obtain interim decisions on disputes pending final resolution by arbitration or litigation. Unfortunately, however, enforcement of a Dispute Board determination is not always straightforward and in this newsletter we consider some of the difficulties which may arise with particular reference to a recent Singapore case.

Dispute Boards

A Dispute Board is usually appointed at the start of a project and is regularly updated on the progress of the works. Where disputes arise, the Dispute Board decides on the dispute usually within a relatively short time frame. Depending upon the procedure adopted, it issues either a non-binding 'Recommendation' or a binding 'Decision'. The ability to get such a determination in a short time frame is considered one of the key advantages of the Dispute Board mechanism.

In practice, however, the successful party may face difficulties in enforcing a Decision. This is particularly so where the unsuccessful party is unwilling to cooperate.

Enforcement

These difficulties can be illustrated by reference to the 1999 FIDIC Red Book (which is commonly used in the region). Clause 20.7 of the Red Book allows a party to initiate arbitration to enforce Dispute Board Decisions where the unsuccessful party fails to issue a 'notice of dissatisfaction' against the Decision within the prescribed period. However, the Red Book does not directly address enforcement where such a notice has been issued. In such a situation, it is not clear whether arbitration can be initiated solely for the purposes of enforcement.

This practical difficulty was brought to the fore in a decision rendered by the Singapore Court of Appeal in the case of CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK, [2011] SGCA 33. In that case, the contractor initiated proceedings before a Dispute Board in respect of certain claims relating to the contract (which adopted the General Conditions of the 1999 FIDIC Red Book). The Dispute Board ruled in favor of the contractor and the employer issued a notice of dissatisfaction against the Decision of the Dispute Board. The contractor subsequently initiated arbitration proceedings. Importantly, the contractor did not refer to arbitration the underlying dispute which formed the basis of the Dispute Board's Decision but instead sought an award on the basis that the sums ordered by the Dispute Board against the employer were immediately due and payable. The employer argued that it was not liable to pay the relevant sum and sought to reopen the Decision of the Dispute Board.

The Tribunal upheld the contractor's claim and issued a final award in its favor. Since the sole issue raised by the contractor related to enforcement, and since no counter claim was raised by the employer, the Tribunal held that it was not necessary to re-consider the Decision of the Dispute Board. However, the Tribunal expressly reserved the right of the employer to initiate separate arbitration proceedings to re-consider the Decision of the Dispute Board on merits.

The employer challenged the arbitral award in enforcement proceedings brought by the contractor before the courts in Singapore. The High Court set aside the award, and this decision was subsequently upheld by the Court of Appeal. The Court of Appeal held that the arbitral tribunal, by making a final award in the case, had denied the employer the opportunity to have the Decision of the Dispute Board re-opened and considered in a single arbitration proceeding. This was held to be in violation of the principles of natural justice. The court however noted that had the arbitral tribunal ordered payment of the sum by means of an interim or partial award, and retained jurisdiction to hear the case on the merits, that would have been permissible.

Practical Considerations

While the decision of the Court of Appeal was based on the interpretation of the specific language used in the 1999 FIDIC Red Book, it serves as a useful reminder of the difficulties that might be encountered in trying to enforce a Decision of a Dispute Board more generally.

The following are some practical measures that could be adopted to ensure an easier process of enforcement:

• The safest way to facilitate enforcement is through careful contract drafting and, in particular, by vesting an arbitral tribunal with jurisdiction to address in a summary or expedited manner any failure to comply with a Decision made by a Dispute Board. Parties may wish to consider amending the standard wording of the FIDIC Red Book, Yellow Book or Silver Book (which all have identical provisions relating to Dispute Boards). Clause 20.9 of the FIDIC Gold Book provides useful guidance of the language that might be useful to adopt in making such modifications:

  “In the event that a Party fails to comply with any decision of the [Dispute Board], whether binding or final and binding, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.8 [Arbitration] for summary or other expedited relief, as may be appropriate.”

• If a Decision is rendered by a Dispute Board under a contract containing provisions relating to Dispute Boards similar to those in 1999 FIDIC Red Book, then it may at times be prudent for the party seeking enforcement to refer the Dispute Board's underlying Decision to arbitration while also seeking an interim award for payment of the amount of the Decision. While it might seem counter-intuitive for a party who agrees with the Decision to do so, this approach is likely to assist in circumstances where a notice of dissatisfaction has been issued.

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