SYSTECH SOLICITORS LEGAL UPDATE

The question as to whether the Singapore Courts will
enforce an interim Dispute Adjudication Board (DAB)
award under FIDIC has long caused uncertainty
amongst construction practitioners. Many thought
that the issue had been clarified in 2014 with the
High Court decision in the long running case known
as the ‘Perusahaan Saga 1 ’, however the defendants,
true to form, appealed throwing the issues back into
contention.
Unfortunately, and much to the dismay of those in
the construction industry, the Court of Appeal 2 (CoA)
decision did not provide the resonant ending that
we were all hoping for.
Security of Payment
Payment disputes often require time and money in
order to settle matters with any finality, invariably
leaving the contractor in a weakened financial
position and vulnerable to the Employer’s increased
leverage.
The Security of Payment (SOP) regime, established
within sub-clauses 20.4 – 20.7 of FIDIC 1999 Red
Book, is a pragmatic mechanism used within the
construction industry with the central purpose of
addressing the imbalance between contractor and
employer when payment disputes arise.
Under the SOP regime, the contractor refers the
dispute to the DAB under sub-clause 20.4. If the
award is granted in their favour, the DAB can require
the employer to pay the disputed sum to the
contractor, without preventing the employer’s future
entitlement to argue the merits of the payment at a
later date. It thereby facilitates the contractor’s cash
flow by granting an instant right to payment despite
the employer’s right to further determination. For
this reason, the mechanism is commonly referred to
as ‘pay now, argue later’.
The effectiveness of the SOP regime depends
fundamentally on the enforceability of the DAB
award and its ability to compel the employer to
make payment.
If the employer does not dispute the DAB’s decision,
according to sub-clause 20.4, it is considered as
‘final and binding’. However, if the employer issues
a notice of dissatisfaction within the contractually
prescribed deadline, usually 28 days, then the
award is only considered as ‘binding’. The only way
of gaining any finality is by proceeding to arbitration 3 .
What concerned contractors were recalcitrant
Employers who used this to their advantage to
refuse payment in discordance with the SOP regime.
The Background
The ‘Perusahaan Saga’ started when PGN, an
Indonesian state owned company, contracted with
CRW (under FIDIC 1999 Red Book) for the installation
and construction of a pipeline in Indonesia. A dispute
arose between the parties in relation to a number of
variation claims (Underlying Dispute).
The issue was referred to the DAB who held in
favour of CRW, ordering PGN to pay USD$17 million
in line with the SOP regime. PGN issued a notice
of dissatisfaction with the DAB’s decision disputing
CRW’s right to enforce immediate payment
(Secondary Dispute).
In 2009, CRW commenced arbitration proceedings
seeking enforcement of payment. PGN argued that
as it had issued a notice of dissatisfaction, the DAB’s
decision was binding but not final and therefore subclause
20.6 could not compel immediate payment
unless the arbitral tribunal heard the merits of the
Underlying Dispute too. However, the tribunal held
in favor of CRW and a final award issuing immediate
payment was granted.
Undaunted from the ruling, PGN continued to
refuse payment. The matter was taken to the High
Court and later to the CoA where they both set
aside CRW’s application, albeit on different grounds.
The CoA stated that the arbitral tribunal by making
a final award was denying PGN the opportunity to
reopen the case. The CoA did state however that
it would have been permissible for the tribunal to
order an interim award. The CoA also held that the
Underlying Dispute must be settled in the same
arbitration proceedings so that the full merits of the
case could be decided.
In 2011, undeterred from the setback, CRW brought
a second round of arbitral proceedings this time
seeking an interim award to enforce DAB decision
as well as the final award to settle the Underlying
Dispute, as advised by the CoA.
PGN resisted with a new line of argument that a
tribunal had no power to issue an interim award as
this would be contrary to Singapore’s International
Arbitration Act (IAA) 4 .
S19B of the IAA states that “an award whether final
or interim, made by an arbitral tribunal pursuant to
an arbitration agreement is final and binding on the
parties, and that the arbitral tribunal must not vary,
amend, correct, review, add to or revoke the award”.
PGN argued that the interim award according to IAA
was final and binding and therefore could not be
altered by a final award which would unjustly deny
1
PT Perusahaan Gas Negara (Persero) TBK (PGN) v CRW Joint Operation (Indonesia) [2014] SGHC 146
2
PT Perusahaan Gas Negara (Persero) TBK (PGN) v CRW Joint Operation (Indonesia) [2015] SGCA 30
3
Sub-clause 20.6 – Arbitration
4
International Arbitration Act Chapter 143A 2002 Revised Edition
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