Are provisional arbitration awards enforceable before the Singapore

CLIENT UPDATE
2014 NOVEMBER
DISPUTE RESOLUTION
Are Provisional Arbitration Awards
Enforceable before the Singapore
Courts?
Introduction
It is not uncommon for arbitral tribunals to issue provisional awards, particularly for disputes in
industries such as construction, where the immediacy of remedies is vital. In PT Perusahaan Gas Negara
(Persero) TBK v CRW Joint Operation (Indonesia) and another matter [2014] SGHC 146, the Singapore
High Court was faced with the question of what constitutes a „provisional‟ award, and whether such
awards are enforceable before the Singapore Courts.
The case involved a series of variation claims under a construction contract incorporating the FIDIC
Conditions of Contract for Construction 1999 (the “Red Book”). The dispute resolution system of the
Red Book allows a contractor to obtain a speedy adjudication for payment from the employer, while
maintaining the employer‟s entitlement to arbitrate the underlying merits of the payment obligation at a
later time. The initial interim award for payment may thus be seen as „provisional‟.
Here, the contractor in question had succeeded against the employer in adjudication, and then went on to
obtain an arbitral award to enforce the payment obligation pending final resolution of the underlying
claim. The employer sought to challenge this award, alleging that it was prohibited under Singapore
statute due to its provisional nature.
However, the High Court held that provisional awards are not prohibited by Singapore legislation, thus
clarifying a longstanding issue of arbitral validity in a manner that is consistent with Singapore‟s proarbitration position. The Court also provided some guidance regarding the conduct of Red Book dispute
resolution.
Brief Facts
The contractor in this case (“CRW”) had been engaged by an Indonesian state-owned company (“PGN”)
to design and install a pipeline. The contract incorporated the Red Book, which is a set of standard-form
terms and conditions commonly used in the construction industry.
The Red Book‟s dispute resolution provisions establish a security of payment regime, whereby parties
may submit disputes to the Dispute Adjudication Board (“DAB”) for interim adjudication. This facilitates
the cash flow of contractors, as DAB decisions on payment must be promptly complied with. However,
employers are entitled to subsequently challenge the underlying merits of the payment obligation through
arbitration – basically, to “pay now, argue later”.
CRW succeeded before the DAB in a number of variation claims. However, PGN failed to comply with the
DAB‟s decision for payment of approximately USD 17 million. CRW thus brought the matter to
arbitration, and obtained an interim award ordering prompt compliance with the DAB decision “pending
the final resolution of the Parties‟ dispute raised in these proceedings” (the “Interim Award”).
The same arbitral tribunal was set to hear and decide on the underlying merits of the payment obligation,
meaning the merits of the variation claims (the “primary dispute”). However, PGN interrupted
proceedings by applying to the Singapore Courts to set aside the Interim Award on the basis that it was
provisional and thus prohibited under the Singapore International Arbitration Act (“IAA”).
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CLIENT UPDATE
2014 NOVEMBER
DISPUTE RESOLUTION
Holding of the High Court
The High Court held in favour of CRW, finding that provisional awards are not prohibited under the IAA.
The Court further held that, even if provisional awards are not allowed, the Interim Award was not
provisional as it was final and binding. The Interim Award was thus upheld.
Validity of provisional awards
PGN‟s challenge was largely based on s19B of the IAA, which requires every award to be final and binding,
and prohibits a tribunal from varying or revoking an award.
(i)
PGN argued that the Interim Award was only provisional as it stood pending the settlement
of the primary dispute, and thus could not be “final and binding”.
(ii)
Further, allowing the Interim Award to stand would prevent the tribunal from deciding on
the primary dispute since the tribunal could not vary or revoke the Interim Award.
The High Court rejected PGN‟s submissions, holding that the IAA does not prohibit a tribunal from
making a provisional award (meaning an award granting relief which is intended to be effective for a
limited period). The Court could find no express provision or legislative intent to support PGN‟s position.
(i)
The Interim Award was found to be “final and binding” on its subject matter – that being
CRW‟s substantive right to be paid now, without having to wait for the settlement of the
primary dispute.
(ii)
Even if the tribunal were to subsequently decide against CRW in the primary dispute, the
Interim Award would not be varied or revoked, as it would cease to have effect upon the
resolution of the primary dispute.
Enforceability of the Interim Award
Even if provisional awards are prohibited by the IAA, the Court was prepared to find that the Interim
Award was not in fact provisional.
(i)
The Interim Award is final and binding as to PGN‟s obligation to pay the specified sum to
CRW.
(ii)
The Interim Award need not be varied by the tribunal even if it subsequently decides against
CRW in the primary dispute as the tribunal can simply order CRW to return the excess sum
to PGN.
Red Book procedure
The High Court also considered the nature of the dispute resolution process under the Red Book – in
particular, whether it adopts a one-dispute or two-dispute approach.
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(i)
The two-dispute approach sees the secondary dispute over the provisional payment and the
primary dispute over the merits of the claim as separate and distinct, allowing the
contractor to refer only the secondary dispute to arbitration.
(ii)
The one-dispute approach sees the primary and secondary disputes as part of a single
dispute, meaning that there is to be only one arbitration for any one DAB decision.
© Rajah & Tann Singapore LLP
CLIENT UPDATE
2014 NOVEMBER
DISPUTE RESOLUTION
The Court endorsed the one-dispute approach. This means that a contractor wishing to enforce a
provisional DAB decision must also take the initiative and bring the primary dispute to arbitration,
despite the contractor typically having no interest in resolving it. Nonetheless, the Court rationalised that,
once the contractor receives a provisional award on the secondary dispute, the carriage of the primary
dispute shifts to the employer.
Concluding Words
This decision is of particular importance to the construction industry, where the enforceability of
provisional awards is vital. Contractors invariably perform services in advance of payment, and where a
payment dispute arises, the interrupted cash flow can have serious or even permanent consequences for
the contractor. A security of payment regime thus allows for contractors to resolve payment disputes on a
prompt – albeit provisional – basis.
However, security of payment regimes based on arbitration can only function if provisional awards are
valid and enforceable before the Courts. Therefore, the Court‟s decision in this case allows for the
enforcement of the “pay now, argue later” system.
On a wider scale, the Court has also demonstrated Singapore‟s commitment to creating a robust
framework to support the conduct of international arbitration. By refusing to recognise provisional
awards, the Court would have significantly restrained the capabilities of arbitral tribunals by removing a
degree of flexibility in awards.
Please feel free to also contact the Knowledge and Risk Management Group at [email protected]
Contact
Paul Tan
Partner
D (65) 6232 0719
F (65) 6428 2104
[email protected]
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