A DAB Decision between the Notice of Dissatisfaction and the Enforcement in ICC Arbitration

Transcription

1 A DAB Decision between the Notice of Dissatisfaction and the Enforcement in ICC Arbitration Oana Soimulescu Partner, Soimulescu & Soltan, Bucharest 1 I. Introduction A lot has been said about the issue of enforcement of DAB Decisions that have not become final and binding under the FIDIC 1999 suite of contracts. In debating the issue certain commentators referred Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board s Decision], which they said, offered support to the idea that a binding but not final DAB decision is not enforceable under the FIDIC contract because the wording of subclause 20.7 included no reference to such decisions but is merely confined to final and binding DAB decisions 2. In the absence of such an express remedy under Sub-Clause 20.7[Failure to Comply with Dispute Adjudication Board s Decision], the failure to comply with a binding but not final DAB decision remained to be referred to arbitration exclusively under 20.6 [Arbitration] under which clause, the party who was successful in the DAB can ask for an interim award for immediate payment of the amounts decided in the DAB decision, pending a decision on the merits of the dispute. This view has been shared by the industry, which, after the publication by Mr Christopher Seppala of its article Enforcement by an Arbitral Tribunal of a Binding but Not Final Engineer s or DAB s Decision under the FIDIC Conditions 3, has reported few other cases of enforcement of DAB decisions by way of interim or partial awards. Before the case of PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation ( PNG v. CRW case ) case, however, no other case had been reported where the claimant limited the scope of the arbitral proceeding to the single issue of immediate payment of the amounts directed by a binding but not final DAB Decision, considering that that was a second dispute independent from the dispute primarily referred to the DAB. The Singapore High Court (HC) and the Singapore Court of Appeal (CA) both took the view that the arbitral award given in this case to enforce that DAB Decision was to be set aside in principle 1 Oana Soimulescu is one of the founding partners of Soimulescu & Soltan, a specialist construction law practice based in Bucharest, Romania. 2 Jeremy Glover & Simon Hughes, Understanding the New FIDIC Red Book : A Clause by Clause Commentary (Sweet& Maxwell, 2006, para ); Dr. Neal G Bunni The gap in Sub-Clause 20.7 of the 1999 FIDIC Contracts for Major Works, [2005] ICLR Christopher R. Seppala : Enforcement by an Arbitral Tribunal of a Binding but Not Final Engineer s or DAB s Decision under the FIDIC Conditions [2009] ICLR 414 1

2 because the arbitral tribunal had exceeded its jurisdiction. The reasoning slightly differed between these two courts but in essence the tribunal was deemed to have acted outside its jurisdiction because it ruled finally on a non-final DAB decision which could have only been the case if the merits were reopened. In conclusion, since 2005 when identified for the first time by dr. Bunni in its article 2005 the gap in Sub-Clause 20.7 is still in place and enjoys recognition by latest ICC decisions on enforcement as well as by the High Court and the Court of Appeal in the PNG v. CRW case. Meanwhile the industry is increasingly looking for fast track solutions to this type of problems. One particular case on enforcement of binding but not final DAB Decisions, where the author has assisted the Claimant as co-counsel has raised a number of questions to which the approach was to do a close reading of Clause 20 of the FIDIC Conditions. This exercise was conclusive in the author s view, to support the idea that the current wording of Clause 20 [Claims, Disputes Arbitration] does allow enforcement of a binding but not final DAB decision by way of a final, partial or interim award, depending on the circumstances. The straightforward reading proposal and the attached conclusions had been upheld by the arbitral tribunal in that case in respect of which a final award has been issued in March 2011 to enforce two binding but not final DAB decisions. Further, the straightforward reading exercise was also conclusive in the sense that in addition to the amendment introduced already in the Gold Book Sub-Clause 20.9 [Failure to Comply with Dispute Adjudication Board s Decision] it may be worthwhile considering an amendment to Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] to provide for a deadline for the dissatisfied party to commence arbitration following the service of a notice of dissatisfaction. II. Reflections on the gap and other issues The Singapore Courts approach to enforcement, the lengthy analysis of almost everything that had been published or reported on the subject matter prompted a set of key questions all relating to the gap issue which called for a close straight forward reading of the Contract provisions : 1. Interim binding, binding or temporarily final and binding? When it refers to the actual effect of the DAB decision as it results from Sub-Clause 20.4, various authors have called that the interim binding 4 effect or the temporarily final and binding 5 effect. In reliance thereof, the Singapore Court of Appeal actually concluded that it is generally accepted that a DAB decision has interim binding effect. 4 Ciryl Chern : Chern on DisputeBoards. Practice and Procedure (Blakwell Publishing 2008, p.5) 5 Dr. Neal G Bunni: The gap in Sub-Clause 20.7 of the 1999 FIDIC Contracts for Major Works, [2005] ICLR 272 2

3 It is not the scope of this analysis to debate on how these qualifications impact on enforcement of binding DAB decisions. Nevertheless, turning back to the wording of Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] 6 it is notable that it provides merely for a binding character of the DAB decision which is conditional upon the absence of an intention to revise the DAB decision ( unless [revised] ) and effective for as long as the DAB decision is not revised by either amicable settlement or in arbitration ( until revised ). In further qualifying the text of Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] the commentators seem to have focused on the time element to the detriment of the very first condition that is the absence of an intention to have the DAB Decision revised in arbitration. This may slightly change the perspective on this paragraph. In the light of the aforementioned, the binding effect of the decision cannot qualify as interim or temporary, unless the party who is interested to have the DAB decision revised, will ask for its revision in amicable settlement or in arbitration. It follows that if the party interested to have the DAB decision revised in arbitration does not commence arbitration or plainly demonstrates that it does not intend to do so, there is no reason to consider that the binding effect is interim or temporary and the successful party may legitimately rely on such a binding effect by asking the enforcement of that DAB Decision by way of a final award. 2. What is (if any) the connection between a notice of dissatisfaction and the abuse of right? The notice of dissatisfaction is a notification whereby a party who is dissatisfied with a DAB Decision indicates to the other party the grounds for its dissatisfaction by mentioning in the notice (1) that it is served under Sub-Clause 20.4 (2) the matter in dispute and (3) the reason(s) for dissatisfaction 7. The notice is a precondition which, if fulfilled, is meant to open an avenue to arbitration to the party who intends to revise a DAB decision. If served timely, the DAB Decision, albeit binding, cannot become final and binding. The FIDIC does not provide any deadline for the dissatisfied party to pursue its case in arbitration to seek the revision of the DAB Decision. This allows the dissatisfied party to abuse a contractual right and serve a notice of dissatisfaction without necessarily intending to pursue a case further in arbitration. The effect of this is in essence that the DAB decision that the other party may be satisfied with does not become final and therefore not enforceable under Sub-Clause 20.7 [Failure to comply with Dispute Adjudication Board s Decision] 6 Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] reads: This decision shall be binding on the parties who shall promptly give effect to it unless and until it shall be revised in amicable settlement or an arbitral award as described below 7 Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] : In either event, this notice of dissatisfaction shall state that it is given under this Sub-Clause, and shall set out the matter in dispute and the reason(s) for dissatisfaction. 3

4 What is remarkable is that this is precisely the argument raised in defence by the party against which the enforcement is sought and which seems to have been successfully validated by the Singapore Courts. Under a civil law system, this qualifies as abuse of right and the sanction for this is the withdrawal of the ability to rely on the right in question or the dismissal of any defence in reliance of an abusive exercise of a right. To us this is a key provision which may need to be reconsidered in the future editions of the FIDIC conditions in the sense that a reasonable deadline, of perhaps no more than 6 months, has to be set out for the dissatisfied party to refer its case to arbitration, failing which, the DAB decision should deemed to have become final and binding, even though a notice of dissatisfaction had been served. The introduction of a specific provision of this nature would provide helpful clarification as to the scope of a notice of dissatisfaction and the limits to which the service of such a notice should be confined. 3. Who brings a case to arbitration and what for? In principle, arbitration in relation to a binding DAB decision should be initiated by the party who has served a notice of dissatisfaction and therefore is deemed to seek to have that decision revised in arbitration. Nevertheless, the debates around the issue of enforcement have been actually generated by the failure of the party serving a notice of dissatisfaction to pursue its case in arbitration, which leaves the other party with basically no option other than to initiate itself the arbitration procedure. In relation to a DAB decision in respect of which one party has served a notice of dissatisfaction but did not pursue a case further in arbitration, the other party may either: (1) Be entirely satisfied with the decision (2) Be partially satisfied with the decision, or (3) Be entirely dissatisfied with the decision (1) In the first case there would not be any ground for the successful party to seek the revision or the re-confirmation of the DAB Decision. A request for reconfirmation of the DAB Decision would automatically entail that the arbitral tribunal may exercise its power to open up, revise and review the merits of the DAB decision and therefore it runs a risk that even though it has asked for the reconfirmation of that decision, in the end the decision is revised as well as the referring party s entitlement to payment. The successful party cannot be therefore interested to submit such a request under Sub-Clause Furthermore, the successful party would be likely to incur the same risk if it asked for an interim award on immediate payment while in parallel it sought reconfirmation of the same DAB Decision. 4

5 Therefore the only request that the successful party may put forward in arbitration is for a final award to order immediate enforcement of the DAB Decision. This however shall not be deemed to prevent the other party from commencing itself arbitration on the merits. (2) In the second case, we think the successful party may ask for a final partial award to enforce the DAB Decision in respect of the issue(s) pertaining to which it did not serve a notice of dissatisfaction. In respect of the other issues however, on which it expressed its dissatisfaction, it may seek to have the DAB decision revised in parallel and decided by way of final award. (3) Finally, in case of dissatisfaction with the DAB Decision, the dissatisfied party shall submit a request to have the DAB decision revised in its entirety or shall wait for the other party to commence arbitration following its own notice of dissatisfaction, in which case his request for revision would be submitted as a counterclaim. This shall A long debate has been launched about what would be the relief sought by the claimant in an arbitration for enforcement of a binding but not final DAB Decision. The Singapore High Court retained in its reasoning that a claim for the breach of Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] may at most treated as a breach of contract in respect of which damages may be due. Nevertheless, in case the DAB decision orders payment of an amount of money such damages may not comprise anything more than the interest on these amounts which, it suggests, would be of little value. Would therefore be wise for the successful party to request enforcement of the DAB Decision, running a risk that this may be considered inaccessible under the current wording of the FIDIC Contracts or would it be wise of to put forward a claim for damages in respect of a breach of contract? 8 One may think that these are alternative options to the successful party when in fact they are not. In all cases, the successful party would seek to be paid the amounts of money award by the DAB and the interest on top of these amounts calculated from the date when the decision was issued up to the date of the actual payment. This is the only possible true compensation against a breach of Sub- Clause 20.4 which can put the claimant in the same situation he would have been had there been no breach. Such a request, however, can only translate legally in a request for enforcement, i.e. for the specific performance of the obligation provided under Sub-clause 20.4[Obtaining Dispute Adjudication Board s Decision] (to give immediate effect to the DAB Decision) and a request for damages.i.e. interest on top of any amounts that may be awarded in the DAB Decision. 8 Under a civil law system the main principle to be considered in awarding damages for a breach of contract or otherwise in tort, would be to bring the claimant back to the same situation in which he would have been had there been no breach. Another principle to be considered is that the damages in respect of a breach of contract shall comprise the actual loss plus the loss of profit. Nevertheless in respect of breaches to an obligation to pay an amount of money, another rule limits expressly the damages to the value of the legal interest. 5

6 The reasoning behind the limitation of the damages to interest in respect to a payment obligation is reliant on the fact that the payment of an amount of money is always possible to fulfill in kind, as money are fungible goods. Therefore, even though there is a breach of the original obligation, in compensation for that the breaching party can only do the same thing, i.e. pay the amount of money it was supposed to pay originally. When asking for enforcement of a DAB decision which one party has failed to give effect to, the other party is seeking to be truly compensated against this breach, i.e. to be paid effectively what it should have been entitled to under the Contract. In the e case of a final and binding DAB decision 9, however, there do not seem to be any difficulties for the commentators to accept that a claim for damages includes more than interest i.e. it includes (and is not an alternative to) a request for enforcement of a DAB decision i.e. for specific performance. Regardless of the legal qualifications, the claimant in such a case is entitled to be truly compensated for a loss suffered in connection with a breach of contract by the other party and the only way in which it can be compensated is to receive the payment it was originally entitled to receive, plus the interest until the date of the effective payment. There is no ground not to apply the same rationale in relation to the binding but not final DAB decision in respect of what do damages include in respect of a breach of Sub-Clause [Obtaining Dispute Adjudication Board s Decision] 4. Is the breach of 20.4 [Obtaining Dispute Adjudication Board s Decision] a dispute in itself? A dispute is a disagreement. Under a FIDIC contract a dispute is a disagreement which (where applicable) could not be settled finally by an Engineer s determination. Actually, Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] provides expressly 10 that a dispute for the purpose of Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] can be in effect any 9 Considering that an Employer breached Sub-Clause 20.4[Obtaining Dispute Adjudication Board s Decision] but not in respect of a binding DAB decision but in respect of a final and binding DAB decision. In such a case, in reliance of the express wording of Sub-clause 20.7 [Failure to Comply with Dispute Adjudication Board s Decision] the aggrieved party could refer the failure itself to arbitration, seeking damages in respect of breach of Sub- Clause It would be unfair and indeed absurd to consider that at the end of the arbitral proceeding under Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board s Decision], the interest would be all that the claimant would recover in respect of a failure to comply with a final and binding DAB decision, particularly considering that the contract does not provide for any other remedy to the party other than the damages in relation to the failure itself to comply with a final and binding DAB decision. 10 Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] : If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer, then after a DAB has been appointed pursuant to Sub-Clause 20.2 [Appointment of the DAB] and 20.3 [Failure to Agree DAB], either Party may refer the dispute in writing to the DAB for its decision, with copies to the other Party and the Engineer. 6

7 dispute of any kind whatsoever which arises from or in connection to the Contract shall be referred to the DAB. Unless otherwise expressly provided, a breach of 20.4 [Obtaining Dispute Adjudication Board s Decision] 11 generates into a dispute as any other breaches would, under any other clauses of the Contract. Unless otherwise expressly provided, the dispute arising from the Employer s failure to give effects to the DAB decision makes no difference whatsoever to any other dispute and therefore, from a procedural point of view, it needs to follow the route set out under Clause 20 [Claims Disputes and Arbitration] in respect of dispute resolution. Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board s Decision] supports fully this interpretation by providing in essence that the failure to comply with a final and binding DAB Decision is a dispute in respect of which, by way of exception, Sub-Clauses 20.4 [Obtaining Dispute Adjudication Board s Decision] and 20.5[Amicable Settlement] do not apply. This reinforces the idea that the failure to comply with a DAB Decision, be it final and binding or binding, is a dispute in itself 12. In the PNG v. CRW case apparently both parties and the Supreme Court agreed that the failure to comply with the DAB decision amounted to a standalone dispute, in respect of which, the DAB procedure should have been observed. The distinction is important not only in relation to the enforcement, but also in relation to other more important issues such as limitation and the definition of the relief sought in arbitration. 5. Is the opening up, review and revision of the merits of a dispute a power or a limitation of jurisdiction? The opening up, review and revision of a DAB Decision in arbitration has been read in the various cases on enforcement as a restriction of the arbitrator s jurisdiction. The Singapore Court of Appeal concluded actually that the Majority Members simply did not have the power under Sub-Clause 20.6 issue the Final Award in the manner that they did, i.e. without assessing the merits of PNG s defense and of the Adjudicator s decision as a whole Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision]: This decision shall be binding on the parties who shall promptly give effect to it unless and until it shall be revised in amicable settlement or an arbitral award as described below 12 There are however views which contradict this considering that there is one single dispute and that refers to the original breach (for example the failure to give access to the Site) in respect of which the Contractor may seek to recover damages. 13 Paragraph 82 of the Singapore Court of Appeal Decision on PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation published on

8 Despite the clear wording of Sub-Clause , the same Court of Appeal submits that it seems quite plain to us that a reference to arbitration under Sub-Clause 20.6 of the 1999 FIDIC conditions of Contract in respect of a binding but non final DAB decision is clearly in the form of a rehearing so that the entirety of the parties dispute(s) can finally be resolved afresh 15 This confirms the view that the lengthy debates about the subject matter have in the end resulted in misreading of the actual text of Sub-Clause 20.6 [Arbitration] which merely provides for a power and under no circumstances for an obligation to reopen the merits or for a limitation on the arbitral tribunal jurisdiction along these lines. Furthermore, as explained above the failure to comply with a DAB decision, be it only binding or final and binding amounts to a standalone dispute, which is separate from the dispute initially referred to the DAB. Such a dispute, just like any other dispute under the Contract in respect of which a DAB decision had not become final and binding shall be finally settled in arbitration. It therefore results, we say, quite clearly, that the arbitral tribunal s jurisdiction in accordance with Clause 20.6 [Arbitration] extends to any dispute whatsoever, including the disputes in relation to the failure to comply with a binding DAB Decision. It would be therefore difficult to accept that under its current wording, Sub-Clause 20.6 [Arbitration] encapsulate any exclusions or limitations on the arbitral tribunal s jurisdiction to enforce a DAB decision by way of a final award, except for the case where the other party has sought in the same proceedings the revision of the merits, in which case the same can be ordered in the form of an interim award. 6. Which are the merits to be revised anyway? It has been argued that under the current wording of the FIDIC Contracts, a binding DAB decision can only enforced in arbitration under Sub-Clause 20.6 [Arbitration] which is said to involve automatically the reopening of the merits. This is yet another example of misreading Sub-Clause 20.6 [Arbitration] which instead refers to DAB Decision which is relevant to the dispute. In the case on enforcement where the author has assisted the Claimant as co-counsel the arbitrator s reasoning in establishing what are the merits to be reopened (if any) is particularly interesting: 14 Sub-Clause 20.6 [Arbitration] : The arbitrator(s) shall have full power to open up, review and revise any certificate, determination, instruction, opinion or valuation of the Engineer, and any decision of the DAB, relevant to the dispute. 15 Paragraph 66 of the Singapore Court of Appeal Decision on PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation published on

9 It follows from such wording 16 that a party s obligation to give effect to a DAB decisions requires (1) a reasoned DAB Decision which states that it is given under Sub-Clause 20.4 of the GCC and (2) that the DAB decision has not been revised by an amicable settlement or an arbitral award. These are the merits or conditions which the Sole Arbitrator has to scrutinize in order to determine whether the Respondent had breached the contract by not giving effect to the DAB decisions concerned. Reverting to the wording of Sub-Clause 20.6, in cases of enforcement where the successful party has referred to the DAB the failure of the other party to comply with previous DAB decisions, this second DAB decision may be the only DAB decision relevant to the dispute concerning a breach of Sub-Clause Clause 20.7 [Failure to Comply with Dispute Adjudication Board s Decision] - a true exception but from which rule? The analysis of Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board s Decision] has been on purpose left at the end. Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board s Decision] provides that the failure to comply with a final and binding DAB decision may be referred to arbitration without following the route prescribed in respect of any other disputes, i.e. without referring it first to the DAB and without allowing the 56 days in respect of the amicable settlement. In simple words, 20.7 [Failure to Comply with Dispute Adjudication Board s Decision] encapsulate an exception from the rule according to which any dispute of any kind whatsoever has to pursue the route prescribed under clause 20.4 [Obtaining Dispute Adjudication Board s Decision] and [Amicable Settlement] The absence of a reference in this Sub-Clause to binding but not final DAB decisions does not make the binding but not final DAB decisions less enforceable under the current wording of the FIDIC Contract. The Singapore Court of Appeal actually suggested (inconsistently) that the failure itself to comply with a DAB decision cannot be referred to arbitration simply because such a failure can only be referred to arbitration if related to a final and binding DAB Decision. III. Conclusions 16 Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision]: This decision shall be binding on the parties who shall promptly give effect to it unless and until it shall be revised in amicable settlement or an arbitral award as described below 9

10 The true purpose of this document was to propose to FIDIC users and construction practitioners a straightforward reading of Clause 20 [Claims Disputes and Arbitration] to conclude that its current wording allows enforcement of binding but not final DAB decisions. Concluding, it is author s view that the current wording of Clause 20 [Claims, Disputes, and Arbitration] allows enforcement of binding but not final DAB decisions on the basis that: - Sub-Clause 20.4 provides expressly for an obligation of the parties to give prompt effects to the DAB decision which shall be binding on them unless and until revised by either amicable settlement or in arbitration. - A breach of such an obligation, like any other breach under the contract may generate into a dispute for the purpose of Sub-Clause 20.4 [Obtaining Dispute Adjudication Board ] which is to be referred itself to the DAB and then, if not settled, to arbitration under Sub-Clause 20.6 [Arbitration]. - Under clause 20.6 [Arbitration] the arbitrator is deemed to have jurisdiction to deal with any dispute in respect of which a DAB Decision (if any) had not become final and binding. - The power to open up revise and review any DAB decision which is relevant to the dispute needs to be considered in the context of the actual dispute. In case the dispute refers to the breach of Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] the issues to be scrutinized by the arbitrator are the issues of whether DAB decision was validly issued and if it had not been revised. Furthermore, the only DAB decision relevant to such a dispute is the DAB decision given in relation to the breach of Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] - The party who is satisfied with the DAB Decision but in respect of which he DAB Decision had not been given effect by the other party shall claim in arbitration to be fully compensated against such breach of contract, i.e. to be effectively paid the amounts directed by the DAB and the interest accrued until the date of the effective payment. - The award to be issued by the arbitrator shall be a final award in the sense that it finally and conclusively decide on the breach of Sub-Clause [Obtaining Dispute Adjudication Board s Decision] particularly in the context where the ambit of the arbitration is the single issue of breach of Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] and the parties confirm expressly or otherwise plainly demonstrate that they do not intend to refer the merits of the underlying dispute to arbitration. Finally it is to be mentioned that perhaps none of these debates would have ever taken place if Sub-Clause 20.4 [Obtaining Dispute Adjudication Board s Decision] provided for a specific deadline for the dissatisfied party to take its case further to arbitration, following the service of a notice of dissatisfaction. 10

11 In this context, this paper was further intended to support an initiative of amending Sub-Clause 20.4 [Obtaining Dispute Adjudication Board] by providing a deadline for the dissatisfied party to pursue its case for the revision of the DAB Decision in arbitration so that the abuse of the right can be avoided. Oana Soimulescu, Partner Soimulescu Soltan, Bucharest Futura Building, 238, Mihai Eminescu Sector 2, , Bucharest, Romania Phone: ; Fax: Mobile: oana.soimulescu@oflaw.eu 11