FIDIC dispute rules need updating in light of Singapore construction dispute, says expert

Out-Law News | 23 Jul 2014 | 4:55 pm | 3 min. read

Construction contract rules need to be amended to enable construction companies to enforce decisions made by dispute adjudication boards (DAB) and access money owed to them by the losers in that process, an expert has said.

International arbitration specialist Mark Roe of Pinsent Masons, the law firm behind Out-Law.com, said that a recent Singapore case had highlighted the need for the FIDIC dispute rules to be updated.

In the case an Indonesia company, CRW Joint Operation (CRW), contracted to "design, procure, install, test and pre-commission" a gas pipeline in the country, won the right to immediate payment of more than $17 million from state-owned gas supplier PT Perusahaan Gas Negara (PGN). PGN has appealed against the decision, according to a report by Global Arbitration Review.

Singapore's High Court upheld a decision by a Dispute Adjudication Board (DAB) to award immediate payment to CRW, rejecting claims by PGN that its arbitration agreement with CRW and Singapore's international arbitration laws did not allow the DAB to force it to comply with an original ruling made by the DAB unless the DAB provided a final ruling on the underlying dispute at the same time.

The ruling follows a protracted dispute between the two companies over enforcement of the DAB's original decision. The original case concerned a dispute between CRW and PGN over changes made to the scope of work CRW was asked to carry out under the terms of its FIDIC contract with PGN.

FIDIC is the International Federation of Consulting Engineers, known by its French acronym. It is best known for its range of standard conditions of contract for the construction, plant and design industries. The FIDIC forms are the most widely used forms of contract internationally.

Following the DAB's original ruling PGN had failed to pay CRW the $17m the DAB said it owed so CRW applied again to the DAB for an order to enforce the original ruling and force PGN to make immediate payment of the money it owed. That application was granted, but the High Court in Singapore overturned the order after PGN argued that the DAB was not permitted to issue such an order unless it went on to hear arguments relating to, and determine the outcome of, the original dispute in the same arbitration.

PGN admitted that it was contractually obliged to make the payment. CRW had an appeal against the High Court's ruling rejected by Singapore's Court of Appeal.

However, CRW went back to the DAB to ask it to issue an order compelling PGN to make its payment and to also issue a final decision in the original dispute within the same arbitration. PGN challenged this approach. It claimed that the DAB could not issue its enforcement order unless it did so at the same time as resolving the original dispute. It said it was not sufficient for the two issues to be addressed within the same arbitration but rather that they required to be dealt with during the same "arbitration award".

However, the DAB rejected PGN's claims and issued an interim award of payment of the $17m to CRW. The High Court has now upheld that ruling, rejecting PGN's arguments on appeal. The DAB is due to settle the original case between CRW and PGN at a later date.

PGN's arguments related to its interpretation of dispute provisions contained in its contract with CRW.

Mark Roe of Pinsent Masons said the case has highlighted the need for those rules to be amended.

"It is encouraging to see the Singapore High Court promoting the principle of 'pay now: argue later' in the context of FIDIC Dispute Adjudication Board decisions," Roe said. "Upholding an arbitral award ordering the employer to pay amounts on a decision of a FIDIC DAB without a final determination of the underlying issue is an important step forward."

"However, the judge in reaching his decision recognised the poor drafting of the FIDIC dispute provisions and in effect ignored the wording of Clause 20.7 [which concerns FIDIC disputes]," he said. "The FIDIC wording badly needs amendment to clarify the position and until that amendment is made the uncertainty and cost surrounding enforcement of DAB decisions will continue."

"However, the judge in reaching his decision recognised the poor drafting of the FIDIC dispute provisions and in effect ignored the wording of Clause 20.7," he said. Clause 20.7 says that if a DAB decision has become final and binding, and that decision is ignored by the losing party, then the winning party can refer to arbitration the losing party's failure to comply with that decision. "The FIDIC wording badly needs amendment to clarify the position and until that amendment is made the uncertainty and cost surrounding enforcement of DAB decisions will continue."

Paris-based construction dispute resolution expert Frédéric Gillion of Pinsent Masons said: "The question remains open as to whether a party may solely refer to arbitration the losing party’s failure to comply with a DAB decision and obtain a final award without having to refer at the same time the underlying dispute."

Gillion said, though, that he believes "there is nothing that should prevent a winning party from referring to arbitration that secondary and narrow dispute provided that it has gone back to the DAB to obtain a separate DAB decision". He said the two issues should not have to be dealt with at the same time.