Singapore High Court decides interim awards are enforceable

In the case of PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) [2014] SGHC 146, the Singapore High Court considered the enforceability of interim awards under the Singapore International Arbitration Act (the IAA).  This judgment provides a useful analysis of what constitutes an enforceable award in Singapore and helpfully clarifies that an interim award which may be subject to further determination will still be enforced by the Singapore courts.  This is a welcome decision on an issue which remains unsettled on an international level and should provide particular comfort to construction practitioners.

Background

PGN, an Indonesian state-owned company, contracted with CRW, an Indonesian company, to design, procure and pre-commission a pipeline.  The contract incorporated the 1999 edition of the FIDIC "red book", a set of standard terms and conditions commonly used in the construction industry.

These rules apply what is known as a "security of payment regime", whereby, in case of a payment dispute, a party can seek a binding interim adjudication from a body known as the dispute adjudication board (DAB).  The purpose of this procedure is to ensure that a contractor can secure a disputed payment in the short term in order to avoid disruption of its cash-flow.  The procedure is supported by a contractual obligation on both parties to give prompt effect to a DAB decision.  However, despite the binding nature of the adjudication decision in the short-term, nothing precludes both parties from re-opening the underlying merits of the DAB decision in subsequent arbitration proceedings (in this case to be seated in Singapore). For this reason, the driving principle of this framework is often described as "pay now, argue later".

The dispute

A dispute arose between the parties regarding a number of variation claims under the contract, which the parties referred to the DAB.  In a decision of 25 November 2008, the DAB held that PGN owed CRW a sum of approximately USD 17 million (the disputed sum), which PGN failed to pay.

PGN's non-compliance with the DAB decision led CRW to commence arbitration proceedings in 2009.  Although the tribunal's award required PGN to pay the disputed sum, ultimately the arbitral award was set aside for reasons which are beyond the scope of this post.

In a second arbitration, CRW obtained an interim arbitral award granted by the majority of the tribunal which again required PGN to promptly pay the disputed sum.  The award was expressed to be made "pending the final resolution of the Parties' dispute raised in these proceedings" (the interim award), thereby upholding the principle of "pay now, argue later".

The Singapore court proceedings

PGN brought an application to set aside the interim award on the basis that it was contrary to the Singapore IAA.  PGN argued that the Singapore IAA does not allow a Singapore-seated tribunal to issue a provisional award which is only binding until it is varied by a final award (a concept which PGN referred to as "interim finality").  Further, in light of an express provision in the Singapore IAA which prohibits a tribunal from varying, amending or revoking an award, PGN argued that the interim award would effectively preclude PGN from seeking any future determination on the underlying merits of the dispute, which would be contrary to the rules of natural justice.

The decision

Vinodh Coomaraswamy J upheld the interim award on the following basis:

• Every decision which has the status of an "award" carries preclusive effect on its particular subject matter, regardless of the fact that other disputes between the parties remain undetermined.  This interim award gave effect to the parties' contractual agreement to promptly comply with a DAB decision, which was an eternal and immutable obligation.
• The judge drew a distinction between a provisional order which is procedural in nature and an interim "award", which gives full effect to a substantive provisional right.  Nothing in the IAA prohibited a tribunal from issuing a "provisional" award – by which the judge meant granting relief which was intended to be effective for a limited period.
• Even if the judge was wrong and "provisional" awards were prohibited, the interim award was not provisional as it was final and binding.  Nor would the interim award be "varied" "amended" or "revoked' – the obligation to comply promptly with a DAB award would not be displaced when the tribunal disposed of the rest of the dispute, as the interim award would simply cease to have effect when the final award was rendered.
• The words "pending the final resolution of the Parties' dispute raised in these proceedings" simply confirmed that the interim award did not preclude PGN from arguing the primary dispute on the merits.  If the tribunal ultimately reversed the DAB decision or reduced the amount payable to CRW by PGN, the tribunal could issue a final award requiring CRW to return the excess, and the interim and final awards would stand together for the purposes of enforcement.

Comment

This judgment provides a useful analysis of what constitutes an enforceable "award" as opposed to an "order" for the purposes of Singapore law.  This distinction is an important one given that only an "award" will qualify for recognition and enforcement under the New York Convention, and neither the New York Convention nor the Model Law (as implemented in Singapore) provides a definition of an "award".

This decision makes it clear that a binding award can be granted in relation to a substantive provisional right.  The interim award gave effect to the obligation to promptly comply with a DAB decision, which was separate and distinct from the question of whether and how much was owed to CRW by PGN, which would be finally determined later on.  It therefore supports the view that an interim ruling can be an "award" and therefore "final" even when it is limited in time.  It also helps to dispel any semantic confusion: the question should be framed as whether the subject matter of the decision deals with a substantive right rather than considering whether the decision can be considered "provisional" or "interim".

This is an important outcome for the efficacy of the arbitral process. Had the court set aside the interim award, this would have rendered PGN's contractual obligation to promptly comply with the DAB decision for all practical purposes defunct.  Before securing payment, CRW would have had to wait for the tribunal to finally dispose of all issues in dispute, thereby allowing PGN to circumvent its contractual obligations.

This also provides welcome judicial support for the "pay now argue later" regime that is the backbone of dispute resolution mechanisms in the construction industry, as it should discourage recalcitrant employers from using the arbitral process as a means of delaying payment of sums which would otherwise be immediately due.

For further information, please contact Alastair Henderson, Partner, Craig Tevendale, Partner, Elizabeth Kantor, Associate, or your usual Herbert Smith Freehills contact.