The use of standard form construction contracts is widespread in many countries throughout the Asia-Pacific region. Of these various forms, the FIDIC (Fédération International des Ingénieurs-Conseils) Red Book 1999 is the most widely used for major construction and engineering projects. It is perceived to offer a fair balance of risk between the parties, is favoured by international agencies and now has the advantage of being familiar to many in the industry.
A number of questions arising out of the Red Book have been the subject of judicial comment. We shall look particularly at a number of cases dealing with the subject of the enforcement of DAB decisions It is, however, important to note that there may be differences in interpretation depending on whether specific remedies are available in civil law or common law and, more importantly, whether they are available in the seat of arbitration. It is not inconceivable that courts and arbitral tribunals sitting in different countries and applying different governing laws may come to different conclusions on the interpretation of clauses in the identical Contract.
It would be useful to briefly examine the dispute resolution clause. FIDIC Clause 20 provides for two primary tiers of dispute resolution: Sub clause 20.4 provides for a Dispute Adjudication Board (DAB) and Sub clause 20.6 provides for international arbitration. A DAB decision is a prerequisite to arbitration. Where a DAB makes a decision the contract provides that "both Parties… shall promptly give effect to it." But if a party is aggrieved it may serve on the other a Notice of Dissatisfaction (NOD) within 28 days. If no such NOD is served, the DAB decision becomes "final and binding." The scope of the arbitration under Sub clause 20.6 is specifically to finally settle "any dispute in respect of which the DAB's decision has not become final and binding." Sub clause 20.7 provides that any failure to comply where neither party has not served a valid NOD shall itself be referred to the arbitration tribunal – because, there is no need to review the underlying dispute because it has become "final and binding."
Significantly, however, the contract is silent on the specific question of the tribunal's powers in the event that a party fails to comply with a DAB decision when a NOD has been served – that is, when the DAB is "binding" but not "final and binding." This has been identified as a lacuna in the drafting by several authors. The issue has come before the Singapore courts in a series of cases arising out of the same DAB decision.
The facts of PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation  SGHC 202 and CRW Joint Operation v. Perusahaan Gas Negara (Persero) TBK  SGCA 33 are straightforward enough. Pursuant to Clause 20.4 of the FIDIC General Conditions, the parties referred the dispute to a sole member DAB. The DAB made several earlier decisions, all of which were accepted and paid, except for one last decision which required PGN to pay CRW US$17.3 million. Following PGN's NOD, CRW initiated an ICC Arbitration against PGN, to enforce the DAB decision. The tribunal issued a final award upholding the DAB decision and directing that PGN had an obligation to make immediate payment of US$17,3 million.
CRW then sought to register the award as a judgment before the Singapore High Court, while PGN applied to the same court to set aside the proposed registration. PGN also applied to set aside the award pursuant to Section 24 of the Singapore International Arbitration Act (SIAA) and Article 34(2) of the UNCITRAL Model Law. The High Court held that, in attempting to enforce the DAB decision by means of arbitration, CRW had erroneously conflated the provisions of Clauses 20.6 and 20.7. As a NOD had been validly submitted by PGN, the disputed DAB decision was not "final and binding" even though it was a binding decision; Clause 20.7 could not apply. The High Court succinctly summarised the position: "the real dispute was clearly whether the DAB decision was correct and following that, whether CRW was entitled to the payment of the sum which the DAB had decided was due. However, CRW tried to limit the dispute to only whether payment of that sum should be made immediately and, in doing so, wrongly relied on sub-cl 20.6. In fact, there is no express right of a party to refer to arbitration under sub-cl 20.7 a failure of the other party to comply with a binding but not final decision of the DAB. An arbitration commenced under sub-cl 20.6 requires a review of the correctness of the DAB decision."
In other words, the High Court identified the lacuna as "there is no express right of a party to refer… a binding but not final decision of the DAB..."
The Court of Appeal dismissed CRW's appeal, but it did so on somewhat different grounds from the High Court.
The Court of Appeal referred to the Terms of Reference (TOR) signed by the parties and members of the Arbitral Tribunal. "The TOR stated clearly that the arbitration was commenced pursuant to sub-cl 20.6 of the 1999 FIDIC Conditions of Contract. Further, it is plain that under the TOR, the Arbitral Tribunal was, by the parties' consent, conferred with an unfettered discretion to reopen and review each and every finding by the adjudicator."
The Court of Appeal then referred to Clause 20.6 of the 1999 FIDIC Conditions which provides that any DAB decision which has not become final and binding "shall be finally settled by international arbitration". The Court held that Clause 20.6 further provided that neither party shall be limited in the arbitral proceedings to the evidence or arguments previously presented to the DAB or to the reasons for dissatisfaction as set out in the NOD.
It is clear from the drafting of the FIDIC Red Book that Clause 20.7 provides for the referral of only a "final and binding" decision to arbitration for enforcement. The wording does not allow a DAB decision that is merely binding to be enforced by an arbitral award. A final decision is one that is unalterable and not open to any further review. Significantly, DAB decisions do not have the status of finality that arbitral awards enjoy under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
There has been a string of articles criticising the decision of the Court of Appeal over its interpretation of Clause 20.7, with authors taking the position that Clause 20.7 was not intended to be interpreted in such a way. , Theirs, however, is a subjective metaphysical interpretation of the contract, as they rely on the subjective opinion of one person to tell them what the clause should have meant – and, in the case of one commentator who was involved in the drafting, his own testimony of what he had intended to achieve.
With respect to them, the standard principles of interpretation must be applied. In this case, that is a simple and straight-forward reading of the plain words used in the FIDIC clauses. Drafters of any standard contract cannot expect that a independent credible court or tribunal should ignore the plain meaning of any contract in favour of what the drafters had personally intended at the time when the Contract (FIDIC or otherwise) was being drafted. FIDIC has, seemingly as a result of the Singapore Court of Appeal judgment, recognised that greater clarity is required and that the current wording of Clause 20.7 fails satisfactorily to deal with the important case of a challenged DAB decision.
On 1 April 2013, the FIDIC Contracts Committee issued a guidance memorandum on the 1999 Conditions of Contract on how a binding (but not final) DAB decision should be dealt with where there has been a failure to comply with the decision (see http://fidic.org/node/1615). The memorandum states: "the failure itself should be capable of being referred to arbitration under Sub-Clause 20.6 [Arbitration], without Sub-Clause 20.4 [Obtaining Dispute Adjudication Board's Decision] and Sub-Clause 20.5 [Amicable Settlement], being applicable to the reference."
The memorandum recommends the insertion of a number of new clauses into contracts based on the 1999 FIDIC Conditions of Contract. These include (i) a new power for a DAB to require the payee to provide security for payment, (ii) inclusion of a DAB award in the amount due to or from a contractor within the next interim payment certificate and (iii) the express provision that a failure to abide by a DAB decision shall be referred straight to arbitration "for summary or other expedited relief".
It is important to say something about these new amendments proposed by FIDIC. It claims to have intended that the new amendments should deal with both "binding" as well as "final and binding" decisions of a DAB and allow both categories to be summarily enforced by a tribunal. It does not, however, mean that all DAB decisions are now expressed to be final. Where a notice of dissatisfaction has been served by a dissatisfied party, the DAB decision is still not "final and binding" and the underlying merits of the dispute can still be dealt with later by an arbitral tribunal which can open up, review, and revise the DAB decision as it deems fit.
The FIDIC memorandum recommends the addition of a new Clause 20.4 to replace the wording of Clause 20.7, and that additional wording be made to clauses 14.6 and 14.7.
The new Clause 20.4 endows the DAB with the power to require a party to provide security if that party is to receive a payment as part of the DAB decision. If an arbitral tribunal reaches a different decision to that of the DAB, the party who has made payment in accordance with the DAB decision should be able to recover its money. A practical difficulty lies with the fact that, whilst a DAB may award such a decision, enforcement of that decision may still require the assistance of an arbitral tribunal.
FIDIC recommends that the existing Clause 20.7 be deleted in its entirety and replaced with the following new clause:
"In the event that a Party fails to comply with any decision of the DAB, 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 20.6 [Arbitration] for summary or other expedited relief, as may be appropriate. Sub-Clause 20.4 [Obtaining Dispute Adjudication Board's Decision] and Sub-Clause 20.5 [Amicable Settlement] shall not apply to this reference."
But does the new wording plug the lacuna in Clause 20.6? In the event that a successful Claimant seeks to enforce an interim award in the courts of a third country (not the seat of the arbitration), there may be a travesty of justice caused to the Respondent if it eventually prevails at the final hearing. Then what should the arbitral tribunal do? Is it even possible to allow a summary award or summary relief in the context of commercial arbitration? Is there a way to get around this conundrum? Due to the constraints of space, it is not be possible to deal with this separate which is alone is a substantial topic . (See forthcoming Ong & O'Reilly, The FIDIC Red Book (Theory, Practice and Dispute Resolution).)
The Singapore Court of Appeal commented in an obiter dictum that there appears to be a settled practice, in arbitration proceedings brought under Clause 20.6 of the 1999 FIDIC Conditions of Contract, for the arbitral tribunal to treat a binding but non-final DAB decision as immediately enforceable by way of either an interim or partial award pending the final resolution of the parties' dispute. If one reads the clear wording of Section 19B of the SIAA, one notes that there is no possibility in Singapore of an interim award to immediately enforce a DAB decision. Section 19B very clearly states that only an award (whether "final" or "interim") made by an arbitral tribunal is final and binding on the parties to the arbitration; the tribunal cannot vary, amend, correct, review, add to or revoke the award.
The Singapore High Court heard a new arbitration appeal brought by the contractor in PGN v CRW  SGHC 146. The majority of the tribunal in the new arbitration issued an award described as an "interim award" and intended their interim award to have finality only up until the time the tribunal heard and determined the primary dispute on the merits and with finality. The minority disagreed and, relying on Section 19B of the SIAA, said that any such award would be deemed to be a final award and that one cannot end up with 2 different Final Awards in the same arbitration with each one awarding different relief and sums.
The High Court held that "A security of payment regime addresses the imbalance between contractor and employer. Its driving principle is the aphorism "pay now, argue later ...There is a clear contractual intent in the Red Book's security of payment regime to … compel an obligor to pay now and argue later..". The Court then held that "The interim award is solely concerned with the secondary dispute: how much PGN should pay now. When the tribunal eventually considers the primary dispute, and hears the parties "argue later", it will determine the rights and obligations of the parties on all other aspects, temporal and topical, of the parties' one dispute."
The Court in effect held that the DAB decision's subject-matter is the primary dispute. That decision is not final because "the Red Book's security of payment regime gives PGN a contractual right to "argue later" about the primary dispute on its merits." The Court held that "The interim award is final because s 19B of the SIAA prevents the tribunal now from revisiting the secondary dispute. Nothing about the interim award's finality with regard to the secondary dispute affects the tribunal's ability to determine the primary dispute."
Unfortunately, the conclusion of the judgment now suggests that it is possible for the Tribunal to issue two different Final Awards dealing with a single claim for losses and damages provided by the DAB. Leaving aside the issue of having 2 Final Awards, one needs to consider: what would happen if there was any clear impartiality or ill intent by any adjudicator? Does this then mean that any decision of the DAB will be rubber stamped as a "secondary dispute" and thus allow it to be immediately converted into an enforceable Award under the New York Convention? One hopes that the Singapore Court of Appeal will soon address these important questions.