In
understanding legal characteristic of Dispute Adjudication Board (“DAB”)
provided under the FIDIC standard forms of contract, one must first understand
the role and power of Adjudicators. Adjudicators are a neutral party that acts
as a judge and arbitrate a formal dispute that has been formally brought to
them, without actually invoking the legal term of being a judge[1].
Adjudicators are only in power over the parties who have agreed to submit their
dispute under the contract to them. In standard form of contract as such as
FIDIC, DAB borrows their power from the provisions under the contract of which
the Parties have agreed on to bestow judicial powers on Adjudicators or DABs to
resolve any arising dispute by utilizing the principles of natural justice.
Like arbitrators, adjudicators are bound to the FIDIC Contract and the
governing law and have to make a legal decision as a complementary contractual
dispute review method which in principle does not replace jurisdiction of state
courts or arbitration unless agreed otherwise.
Clauses 20 of
the FIDIC forms have been widely drafted and cover the process for a referral
of a dispute to the DAB. If any dispute arises, the parties to the contract may
refer it to the Dispute Adjudication Board. Then under subclause 20.2, a
nomination procedure for the appointment of the DAB shall take place. The DAB
only has jurisdiction to consider the dispute that is referred to it and
commonly it involves the opening up, review and revise any certificate,
determination, instruction, opinion or valuation of the Engineer. Moreover, a
DAB may also be used for dispute avoidance purposes. Thereon, the decision of
the DAB would then be binding, and it is unlikely that it would be possible to
refer that dispute back to the DAB. In some circumstances it might be possible
(with new facts) to refer a new but related dispute to the DAB. For example, a
revised extension of time claim based upon additional facts.
Nonetheless,
the DAB decision is binding but not final. This means that the parties must
honour the DAB’s decision, eventhough a party may not be satisfied with the
decision. To address this issue, FIDIC allowed under the contract for the
dissatisfied party to give a notice of dissatisfaction. According to Subclause
20.4;
“the [DAB] decision shall be binding on
both Parties, who shall promptly give effect to it unless and until it shall be
revised in an amicable settlement or an arbitral award as described below”.
Thus the
Parties to the Contract have promised to each other to comply with any of the
DAB´s decision whether final and binding, or provisional and binding. According
to Subclause 20.7, in the event that a Party fails to comply with this
decision, then the other Party may, without prejudice to any other rights it
may have, refer the failure itself to arbitration under Subclause 20.6
-Arbitration.
A failure to
comply with a final and binding DAB’s decision will most likely have to be
referred to arbitration rather than a local court. An interim arbitration award
could provide for immediate enforcement of the DAB’s decision if the tribunal
is satisfied that the DAB had jurisdiction to issue the decision.
Like in the
recent Singaporean judgement in a dispute between PT Perusahaan Gas Negara
(Persero) TBK and CRW Joint Operation[2],
the court said that the contractor should “secure
an interim or partial award from the arbitral tribunal in respect of the DAB
decision pending the consideration of the merits of the parties’ dispute(s) in
the same arbitration”. This means that the contractor should commence arbitration
and then require the arbitral tribunal to issue an interim award for the sum
ordered by the DAB to be paid immediately, without investigating the merits of
the claim. The arbitration would then deal with the overall merits of the
dispute in its final award and the sum ordered by the DAB could be adjusted
upwards or downwards.
During the
performance of the contract, CRW had submitted thirteen “Variation Order
Proposals” (“VOPs”) to PGN but the parties could not agree on their valuation.
Pursuant to Subclause 20.4, the parties referred their dispute to a
single-person Dispute Adjudication Board (“DAB”), where CRW was awarded a sum
of US$ 17,298,834.57 in respect of the VOPs and it was followed by PGN issuance
of a notice of dissatisfaction (“NOD”) of such decision.
From the
contractor’s perspective, as claims presented to a DAB are sometimes prepared
in tight timescales that do not allow sufficient time to investigate all
aspects of the matter. This may be reflected in the DAB’s decision and allows
rooms for further argument on what has been decided.
Thereafter,
the parties entered into arbitration following the further provision provided
under the contract if DAB fails to resolve the matter in dispute. PGN claimed
that DAB decision was not yet final and binding, thus PGN was not obligated to
make the payment. The Tribunal stated that the main issue in contention between
the parties was the meaning and effect of the following sentence appearing in
the fourth paragraph of subclause 20.4, where:
“The (DAB) decision shall be binding
on both parties, who shall promptly give effect to it unless and until it shall
be revised in an amicable settlement or an arbitral award as described below.”
With this the
Tribunal stated the DAB decision, although it may not be ‘final’, is
nonetheless binding on the Respondent who is obliged, by the express terms of
subclause 20.4. Therefore parties must comply promptly with the DAB decision to
make immediate payment of the sum of S$ 17,298,834.57 to the Claimants.
CRW subsequently
took out an application before the High Court of Singapore to register the
award as a judgment in Singapore. In response, PGN applied to Court to set
aside the registration order. PGN claimed that the NOD was served in compliance
with the contract, that the DAB decision was not an arbitral award enforceable
under applicable law, that the DAB decision contained errors and that it would
be unfair to enforce it until those errors had been examined by the Tribunal.
Further, PGN denied that it was in breach of contract in not paying according
to the DAB decision because the decision was not final and binding. PGN also
applied to Court to set aside the arbitral award pursuant to Section 24 of the
Singapore International Arbitration Act and Article 34(2) of the UNCITRAL Model
Law.
The Court
found in favour of PGN and held that:
·
In seeking to enforce the
DAB decision against PGN by means of arbitration, CRW had erroneously conflated
the provisions of subclause 20.6 and 20.7;
·
Given that an NOD had been submitted
by PGN, the DAB decision in question was not "final and binding"
(though it was "binding") and hence, subclause 20.7 did not apply;
·
The real dispute was whether
the DAB decision in question was correct and consequent to that, whether CRW
was entitled to payment of the amount that the DAB had decided was due and
payable by PGN. CRW however tried to limit the dispute to whether payment of
the said sum should be made immediately and in so doing, CRW wrongly relied on
subclause 20.6.
To summarise
the position of this case, legal characteristics mentioned earlier are indeed a
timely reminder of the fundamental understanding of DAB’s responsibility and
position on what to be construed as “final and binding” or something as just
being merely “binding”. Even if the "final and binding" requirement
has been retained, it remains open for the successful party to rely upon
subclause 20.6 to obtain an interim or provisional award, pending a final
determination of the dispute at large.
