Developments in Construction Law in Singapore (2014)

Transcription

1 Developments in Construction Law in Singapore (2014) Ho Chien Mien Partner Litigation and Dispute Resolution 20 January H P Construction & Engineering Pte Ltd v Chin Ivan [2014] SGHC 137 Architect certificate issued under SIA Conditions allegedly affected by fraud Issues: Standard of proof required to obtain stay of proceedings in favour of arbitration Whether certificates wholly invalid due to architect acting outside scope of his authority Possibility of granting partial stay of proceedings in favour of arbitration

2 H P Construction Engineering Pte Ltd v Chin Ivan [2014] SGHC Facts Chin ( D ) employed H P ( P ) in May 2009 as main contractor to build two detached houses in Sentosa Cove Contract used was the SIA Conditions (Lump Sum Contract) (7 th Ed, April 2005). Cl 31(13) of the SIA Conditions provided that: No certificate of the Architect under this Contract shall be final and binding in any dispute between the Employer and the Contractor, whether before an arbitrator or in the Courts, save only that, in the absence of fraud or improper pressure or interference by either party, full effect by way of Summary Judgment or Interim Award or otherwise shall, in the absence of express provision, be given to all decisions and certificates of the Architect (other than a Cost of Termination Certificate or a Termination Delay Certificate (continued at next page) H P Construction Engineering Pte Ltd v Chin Ivan [2014] SGHC under clause 32(8) of these Conditions), whether for payment or otherwise, until final judgment or award, as the case may be, and until such final judgment or award such decision or certificates shall (save as aforesaid and subject to sub-clause (6) of this condition) be binding on the Employer and the Contractor in relation to any matter which, under the terms of the Contract, the Architect has a fact taken into account or allowed or disallowed, or any disputed matter upon which under the terms of the Contract he has as a fact ruled, in his certificates or otherwise. The Architect shall in all matters certify strictly in accordance with the terms of the Contract. In any case of doubt the Architect shall, at the request of either party, state in writing within 28 days whether he has as a fact taken account of or allowed or disallowed or ruled upon any matter in his certificates, if so identifying any certificate and indicating the amount (if any) taken into account or allowed or disallowed, or the nature of any ruling made by him, as the case may be.

3 H P Construction Engineering Pte Ltd v Chin Ivan [2014] SGHC Facts (cont d) Architect issued two Architect s Instructions ( AIs ) (which formed the basis for certificates later) approving some variations on P s list of proposed variation works, including items relating to claims for: Preliminaries for an alleged extension of time granted to the P to complete the project; and An alleged extension of the defects liability period (cumulatively, the Disputed Items ). P raised an interim payment claim and final payment claim. Architect issued Progress Certificate for $321, and Final Certificate for $720, Total amount certified was $1,041,801.22, of which QS valued the Disputed Items at S$334, D did not pay the certified sum of $1,041, P brought a suit against D claiming this payment. H P Construction Engineering Pte Ltd v Chin Ivan [2014] SGHC Facts (cont d) D applied for a stay of proceedings under section 6 of Arbitration Act on the basis that the certificates had been procured by fraud. To support this argument, D relied on a letter dated March 2014 from the Architect stating that the Architect relied on P s representation that D had agreed to various proposed variations (including the Disputed Items) in issuing the AIs ( the Letter ). D alleged that P fraudulently made this representation as D had not given such consent. P denied ever making the representation to the architect The Assistant Registrar granted D s application to stay the proceedings in favour of arbitration on the basis that there appeared to be a bona fide dispute as to whether the certificates were procured by fraud. P appealed the decision

4 H P Construction Engineering Pte Ltd v Chin Ivan [2014] SGHC Issue 1: What is the standard of proof that D is required to show to obtain a stay of proceedings in favour of arbitration on the basis that a certificate issued by an architect under SIA Conditions was affected by fraud? This is a novel point of law as there have not been any decided cases in the Singapore High Court where allegation of fraud has been raised as a ground for such a stay [26] D s argument: A stay of proceedings in favour of arbitration can be granted if D can show there is, prima facie, a bona fide dispute as to whether there was improper pressure or interference: Anwar Siraj v Teo Hee Lai Building Construction Pte Ltd [2007] 2 SLR(R) 500 Argued this standard should be applied to the instant case to determine whether to stay proceedings on the basis that certificates were fraudulently procured H P Construction Engineering Pte Ltd v Chin Ivan [2014] SGHC 137 P s argument: 7 Anwar Siraj is authority only for the standard of proof required to stay proceedings due to improper influence or interference, so is distinguishable from the instant case. Fraud vis-à-vis an architect s certificate requires the party applying for stay of proceedings in favour of arbitration to meet a higher threshold D must make out an arguable case that certificates were procured by fraud Higher standard of proof required because fraud has serious implications. Cogent evidence is required before court is satisfied that an allegation of fraud is established [36] Analogised the standard of proof required for a stay of proceedings for fraud to the high standard of proof required to obtain injunctions to restrain calls on a performance bond: must show that it is seriously arguable that, on the material available, the only realistic inference is that the beneficiary could not honestly have believed in the validity of its demands on the performance bond (Shanghai Electric Group Co Ltd v PT Merak Energi Indonesia [2010] 2 SLR 329 at [36]-[37])

5 H P Construction Engineering Pte Ltd v Chin Ivan 8 [2014] SGHC 137 Held: Party applying for stay of proceedings in favour of arbitration on the basis that a certificate issued by an architect under SIA Conditions was affected by fraud must establish that there is a bona fide dispute as to fraud on a prima facie basis, where there must be credible evidence of fraud and not mere allegations. [40 and 42] Acknowledged that fraud is a serious allegation, but does not necessitate a different standard of proof to obtain a stay in favour of arbitration [37] Rejected P s analogy of stay of proceedings in favour of arbitration on architect s certificates and obtaining injunction to restrain calls on performance bonds on grounds of fraud as (1) unlike a performance bond, architect s certificates not intended to be security and is connected to an underlying contract; and (2) there are doctrinal differences between injunctive relief and stay of proceedings [38] H P Construction Engineering Pte Ltd v Chin Ivan 9 [2014] SGHC 137 So, applying the law to the facts was there a bona fide dispute as to whether there was fraud? Acknowledged arguments by P and D as to whether there existed a bona fide dispute of fraud BUT refused to make a finding on the merits; confirmed approach of Andrew Ang J in Anwar Siraj at [36] that: I [do not] have to make a finding on the merits that there was indeed improper pressure or interference by the plaintiffs. It suffices for me to say that prima facie there is a bona fide dispute whether there is improper pressure or interference. Merely found that there was a bona fide dispute as to whether there was fraud: It cannot be said that the Defendant s allegation of fraud is a mere assertion or that the Letter is not credible. I therefore find that it is not indisputable that the Certificates are not affected by fraud [49]

6 H P Construction Engineering Pte Ltd v Chin Ivan 10 [2014] SGHC 137 Issue 2: Are the certificates, as a result of the architect acting outside the scope of his authority, wholly invalid such that a stay of proceedings in favour of arbitration should be granted? D s argument: Certificates were not issued in accordance with terms of contract in that they included claims for the Extended Preliminaries A claim for extended preliminaries is in the nature of a claim for loss and damage (Pitchmastic plc v Birse Construction Ltd (19 May 2000)) and is outside the certifying power of the Architect, because the architect shall, in the absence of express provision, have no power to decide or certify any claim for breach of contract (emphasis added) (Cl 31(14) SIA Conditions) the architect had no power to issue instructions to authorise payment for extended preliminaries (Cl 1(4) SIA Conditions), so certificates which relied on AIs were similarly infected [50] Architect failed to apply his mind to whether he had the right to issue instructions for the items on the AIs by relying on the alleged misrepresentations and on the project manager s silence P s argument: Pitchmastic is distinguishable Under SIA Conditions, architect was empowered to issue instructions ordering variations to the works under cl 12(1) which included the valuation of preliminary items under cl 12(4) H P Construction Engineering Pte Ltd v Chin Ivan 11 [2014] SGHC 137 Held: A certificate not issued in accordance with the underlying contract can be regarded as a nullity (and therefore sufficient to stay proceedings); however, non-compliance is not fatal where there is evidence of waiver in the absence of substantial vitiating factors I accept that if a certificate is not issued in accordance with the contract, it can be regarded as a nullity. This seems to have been treated as an additional exception to the exceptions of fraud, improper pressure and interference. However, non-compliance is not always fatal, such as where there is evidence of waiver, in the absence of substantial vitiating factors. [53] Policy reasoning: Khoo J in China Construction (South Pacific) Development Co Pte Ltd v Leisure Park (Singapore) Pte Ltd [1999] 3 SLR(R) 583 at [29]: To prevent employers from relying on and taking advantage of lapses on the part of architects (such as the form and timing of certifications of payments to the contractor)

7 H P Construction Engineering Pte Ltd v Chin Ivan 12 [2014] SGHC 137 (Having established prima facie a bona fide dispute of fraud) Issue 3: To stay whole of P s claim, or to grant D a partial stay of proceedings? A novel point of law [T]here do not appear to be any cases in Singapore where only part of an architect s certificate has been found to be valid the Defendant has also not provided any cases which concluded that it is not possible to accord temporary finality to part of an architect s certificate. It is still open to me to decide. [63] P s argument: Lojan Properties (CA) is authority that a stay can be granted on a sum that forms only part of a certificate (HC rejected as an incorrect reading of the case) D s argument: Wording of cl 31(13) of SIA Conditions (that a certificate should only be given full effect by way of summary judgment in the absence of fraud) does not contemplate that only part of a certificate may be given temporary effect. Arguably, any fraud, even if it relates to a part of the certificate, means that fraud is present and full effect cannot be given to the certificate H P Construction Engineering Pte Ltd v Chin Ivan 13 [2014] SGHC 137 The objective and spirit of cl 31(13) SIA Conditions (the importance of temporary finality of architect s certificates to the construction industry) should not be disregarded. No suggestion that other items on the Certificates were infected by fraud and they could have just easily been certified on a different certificate. Disputed Items were clearly quantified and severable if found to be affected by fraud Re objective and spirit of cl 31(13) SIA Conditions I recognise that temporary finality under the SIA Conditions serves an important purpose in ensuring that contractors are paid on time. Contractors faced the problem of being kept out of their moneys for extended periods of time by unscrupulous employers invoking technical grounds to avoid payment The importance of progress payments to contractors cannot be understated in an industry beset by cashflow problems. [27 and 29] Conclusion: Granted stay of part of P s claim that relates to the Disputed Items, no stay in respect of the remaining claimed sums

8 14 Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC 20 Breaches of Settlement Agreement in relation to rectification works to a property Issues: Whether appointment of and award by the Professional Engineer should be set aside Whether clause in Settlement Agreement prohibiting parties from complaining to the Professional Engineers Board is illegal and unenforceable Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC Facts On 8 April 2010, Poh Cheng Chew ( P ) engaged 1D as Architect and 2D as Contractor to carry out additions and alterations to a property owned by P ( the A&A Works ) 1D and 2D owned by Koh Kok Peng ( Koh ), a professional engineer Dispute arose regarding the A&A Works, which were alleged by P to be defective and incomplete P commissioned 2 reports to be produced on the A&A Works On 8 February 2012, P issued a letter of demand to the 1D and made complaints to the Professional Engineers Board ( PEB ) and BCA On 12 March 2012, Parties entered into a Settlement Agreement through mediation

9 Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC 20 Facts (cont d) 16 As part of the Settlement Agreement, 1) A Professional Engineer ( PE ) was to be appointed to: Set out the scope and specifications of the rectification works Prepare and call for a tender for the said works Evaluate the tenders and award the contract 2) Ds were to pay the fees of the PE, the costs of the rectification works, the costs of 2 service apartments for the duration of the rectification works, and $20,000 to P as compensation for moving and costs 3) P was to refrain from filing complaints against Koh or the Ds with the PEB Chan Yaw Fai ( Chan ) was appointed as PE and awarded the contract to Crystallite Construction & Engineering Pte Ltd ( Crystallite ) for $498,000 to carry out the rectification works. Ds disagreed with Chan s decision and did not make further payment to P Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC Facts (cont d) P claimed the sum of $718, for the loss and damage suffered as a result of Ds breach of the Settlement Agreement, and made a complaint to the PEB on 16 August 2012 against Koh Ds denied that P was entitled to any payment, prayed for Chan s appointment and the award of the contract to Crystallite to be set aside, and claimed that P had breached a fundamental term of the Settlement Agreement by making a complaint to the PEB.

10 Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC Issue 1: Could: (i) Chan s appointment as PE; and (ii) Chan s award of the rectification works to Crystallite, be set aside solely because he acted in a biased manner and chose to align his interests with those of P? D s argument: Chan was not independent, but acting under the influence of P and/or his agents, and had materially departed from his instructions in awarding the contract. Alternatively, P had conspired with Chan to increase the scope and specifications of the rectification works. Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC Held: The starting point for ascertaining the validity of an expert's appointment is the contract itself. (i) Re Chan s appointment as PE Lionel Yee JC: To my mind, [D s] concerns do not relate to the circumstances of Chan s appointment. They are more relevant to the issue of whether Chan acted properly in making his determinations under the Settlement Agreement Ds should have (but did not) contend that: Chan s appointment was not in accordance with the Settlement Agreement Chan was in a position of conflict of interest in that he had prior dealings with any interested parties, as in HSBC Institutional Trust Services (Singapore) Ltd v Toshin Development Singapore Pte Ltd [2012] 4 SLR 738 Conclusion: No reason to set aside Chan s appointment as PE

11 Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC High Court (cont d): (ii) Re Chan s award to Crystallite As a general rule, the only grounds to challenge an expert s determination are:- a) Material departure from instructions; b) Manifest error; or c) Fraud, collusion, partiality and the like. [See The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd [2009] 2 SLR(R) 385] The Court proceeded to examine ground a) and c) in relation to the instant case Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC High Court examining issue of Chan s award to Crystallite (cont d): Material departure from instructions? As to the test of materiality, any departure from instructions must generally be regarded as material unless it can truly be characterised as trivial or de minimis Once a material departure from instructions is established, the court is not concerned with its effect on the result A distinction should be drawn between mistakes made by the expert and a departure from the instructions, as in Nikko Hotels (UK) Ltd v MEPC plc [1991] 2 EGLR 103: If he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity. In this case, a holistic view of the Settlement Agreement shows that the parties intended to give the PE a measure of discretion in preparing the scope of the rectification works Chan did not depart from his instructions by including other works that were not stated in the Consultants Reports

12 Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC High Court examining issue of Chan s award to Crystallite (cont d): Fraud, collusion, and partiality? The test of partiality is one of actual bias and not apparent bias (Macro v Thompson (No 3) [1997] 2 BCLC 36 Chan failed to act impartially as: Chan was of the view that the rectification works were to be carried out to the Plaintiff s satisfaction Chan expanded the scope of the rectification works on P s request Chan did not take into account the Ds interests at all and admitted his evaluation of the tenderers was not objective. Conclusion: The Court set aside the award of the contract to Crystallite Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC Issue 2: Was the clause in the Settlement Agreement which prohibited P from complaining about D to the PEB valid? Ds argument: P did not plead that Clause 12 of the Settlement Agreement, prohibiting P from making a complaint to the PEB, was against public policy There is nothing in the legislation to compel someone to file a complaint to PEB Such a clause prohibiting a complaint is akin to a compromise by a party not to commence legal proceedings against another party in exchange for compensation Clause 12 is like an agreement not to volunteer to give evidence Public policy requires that contracts freely entered into be upheld

13 Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC Held: A clause in the Settlement Agreement prohibiting P from making a complaint to the PEB is illegal and unenforceable, as it would allow an engineer to effectively contract out of regulatory oversight of his professional conduct by the PEB under the Professional Engineers Act Simply because the Professional Engineers Act does not impose a duty on persons to make complaints but allows for complaints to be made is thus not conclusive; the essential inquiry is parliamentary intention and the purpose of the statute This reflects a wider public interest to prevent misconduct on the part of those who hold themselves out to the public at large as professional engineers Poh Cheng Chew v K P Koh & Partners Pte Ltd and another [2014] SGHC High Court (cont d): There is no provision in the Professional Engineers Act which allows professional engineers to release or exempt themselves from disciplinary proceedings by paying compensation in an agreement between private parties The need to uphold professional accountability outweighs any public policy to allow business to be transacted freely and to uphold commercial bargains The finding of illegality does not render the Settlement Agreement void as the offending portion is severable

14 26 Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd [2014] SGHC 57 Application for injunction to restrain call on performance bonds until determination of arbitration proceedings Issue: Whether call on bonds unconscionable Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd [2014] SGHC Facts: Dispute concerned a property developer ( D ) and main contractor ( P ) for the development of three apartment blocks Under the main contract, P was required to provide, and did provide two performance bonds for 10% of the total contract price in lieu of a deposit Two disputes subsequently arose regarding (a) delay in completion and (b) the remedy of defects which was referred to arbitration Arbitration had not begun when D issued demands to the insurer for the total amount of the bonds P applied for an injunction to restrain D from calling on the performance bonds P argued that the calls were unconscionable since they were made before the determination or outcome of the arbitration D argued that it was entitled to call because it was claiming from P a sum greater than that secured by the bonds The contract entitled D to call on the bonds without furnishing any proof

15 Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd [2014] SGHC Issue: Whether the call on the performance bonds was unconscionable based on a prima facie assessment of the context Court held that it was P s burden to prove on a strong prima facie basis that the call was unconscionable: Thus a call that was genuinely made in the honest belief that the obligor was in breach of its obligations would be respected unless unconscionability was shown Unconscionability would include elements of abuse, unfairness and dishonesty The applicant would have to establish unconscionability to the high threshold of a strong prima facie case BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352 The court would consider thoroughly the entire context of the case and would only grant an injunction if the entire context of the case was particularly malodorous - BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352 The fact that disputes arising from the contract were referred to arbitration would not preclude a call on the bond The purpose of a performance bond was for a party to obtain security for its claim in damages, even if it was disputed. When the dispute was finally determined, the obligor could claim compensation for overpayment due to the call. Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd [2014] SGHC P put forward 5 arguments to substantiate its claim that the call was unconscionable. P s argument 1: Architect Failed to Properly Grant EOT: P pleaded that he had carried out substantial variation works even before receiving written instructions or an extension of time and he trusted the architect to do the right thing when he applied for an extension. When P did apply for an extension, he alleged that he had provided sufficient documentation supporting his applications. Held: Correspondence between P and architect revealed prima facie that there were insufficient reasons to grant an extension of time. Architect s directions revealed on a prima facie level that the delay had been brought to P s attention numerous times before the actual completion of works

16 Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd [2014] SGHC P s argument 2: Architect Subject to Defendant s Pressure: P also claimed that the architect subsequently confided to him that he had been pressured by the defendant not to grant any extension of time Held: Allegations that the architect was being pressured not to grant an extension were hearsay P s argument 3: Improper Appointment of Architect s Assistant: P claimed that one Mr Kevin Timmons had been improperly appointed to assist the architect to evaluate the extension of time Held: Bare allegation hence claim rejected. Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd [2014] SGHC P s argument 4: Unconscionable Claim on Defects: P pleaded that while the defects were minor, (a) no site inspection had been carried out to ascertain the defects and (b) D was attempting to show that P s work was so unacceptable as to have over 500 items of defects Held: The fact that no site inspection was carried out despite the defendant s allegations was not unconscionable. Even if the lack of an inspection was unconscionable, it would not affect the call as the bulk of the claim was for liquidated damages. The fact that over 500 defects were listed was not unconscionable P s argument 5: Dispute Over Accounts: P disputed D s accounts Held: The accounts justifying the sums behind the call were not apparently dishonest or misleading. The call would be legitimate if made honestly and position was genuine. Any discrepancies were due to a dispute over the amount of liquidated damages

17 Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd [2014] SGHC P s argument 6: Financial Hardship to P: P pleaded that calls put it in a very difficult financial position such that it would be unable to prosecute its claim against the D Held: Financial hardship of the P irrelevant. Unconscionability focused on the conduct of the beneficiary, not on the consequences on the obligor. 33 PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) and Another Matter [2014] SGHC 146 Application to set aside Interim Award giving effect to Dispute Adjudication Board decision and order of court enforcing Interim Award Issue: Whether Interim Award giving effect do Dispute Adjudication Board s decision enforceable as a final and binding award

18 PT PGN v CRW Joint Operation (Indonesia) Facts: 34 PGN ( P ) is a listed, state-owned company established under Indonesian law CRW ( D ) is also an entity established under Indonesian law and comprises three Indonesian limited liability companies. By contract entered into in 2006, P engaged D to design, procure, install, test and re-commission a pipeline to convey natural gas from South Sumatra to West Java. Contract incorporated the 1 st edition of the Conditions of Contract for Construction, published by the International Federation of Consulting Engineers/Fédération Internationale Des Ingénieurs-Conseils ( Red Book ), in particular, cl 20 relating to Claims, Disputes and Arbitration Dispute resolution process envisaged a contractual security of payment regime which required the dispute to be referred to a Dispute Adjudication Board ( DAB ), before referring the dispute to arbitration In 2008, disputes arose on a number of variation claims made by D under the contract, The parties referred their dispute to the DAB constituted by the contract, PT PGN v CRW Joint Operation (Indonesia) 35 Relevant Red Book Clauses ( ): 20.4 Obtaining Dispute Adjudication Board s Decision [1] If a dispute (of any kind whatsoever) arises between the Parties, either Party may refer the dispute in writing to the DAB for its decision. [4] Within 84 days after receiving such reference the DAB shall give its decision, which shall be reasoned and shall state that it is given under this Sub-Clause. The 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. [5] If either Party is dissatisfied with the DAB's decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its dissatisfaction. If the DAB fails to give its decision within the period of 84 days after receiving such reference, then either party may, within 28 days after this period has expired, give notice to the other Party of its dissatisfaction. [6] Except as stated in Sub-Clause 20.7 neither Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with this Sub-Clause. [7] If the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB's decision, then the decision shall become final and binding upon both Parties.

19 PT PGN v CRW Joint Operation (Indonesia) 36 Relevant Red Book Clauses ( ) (Cont d): 20.5 Amicable Settlement Where notice of dissatisfaction has been given under Sub-Clause 20.4 above, both Parties shall attempt to settle the dispute amicably before the commencement of arbitration. However arbitration may be commenced on or after the fifty-sixth day after the day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made Arbitration [1] Unless settled amicably, any dispute in respect of which the DAB's decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both Parties: (a) the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce. (b) the dispute shall be settled by three arbitrators appointed in accordance with these Rules, and (c) the arbitration shall be conducted in the language for communications defined in Sub- Clause 1.4. PT PGN v CRW Joint Operation (Indonesia) 37 Relevant Red Book Clauses ( ) (Cont d): 20.6 Arbitration [2] The arbitrator(s) shall have full power to open up, review and revise any decision of the DAB, relevant to the dispute.... [3] Neither Party shall be limited in the proceedings before the arbitrator(s) to the evidence or arguments previously put before the DAB to obtain its decision, or to the reasons for dissatisfaction given in its notice of dissatisfaction. Any decision of the DAB shall be admissible in evidence in the arbitration.

20 PT PGN v CRW Joint Operation (Indonesia) 38 Relevant Red Book Clauses ( ) (Cont d): 20.7 Failure to Comply with Dispute Adjudication Board s Decision [1] In the event that: (a) neither Party has given notice of dissatisfaction within the period stated in Sub- Clause 20.4, (b) the DAB's related decision (if any) has become final and binding, and (c) 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 Sub-Clause Sub-Clause 20.4 and Sub-Clause 20.5 shall not apply to this reference. PT PGN v CRW Joint Operation (Indonesia) 39 Relevant Red Book Clauses ( ) (Cont d): Combined Effect of Red Book Clauses: If any dispute between the parties arose, the dispute had to be referred to the DAB before arbitration DAB would render a binding decision within 84 days Decision creates a secondary obligation to pay regardless of the underlying liability to pay This would give effect to the contractual security of payment regime pay now, argue later Arbitration could be commenced if the following conditions precedent were satisfied: If the dispute had been referred to the DAB first; If notice of dissatisfaction was given within 28 days of receipt of the decision; and Either parties fail to settle the dispute amicably or 56 days elapse from notice of dissatisfaction without an attempt at amicable settlement

21 PT PGN v CRW Joint Operation (Indonesia) 40 Relevant Red Book Clauses ( ) (Cont d): Combined Effect of Red Book Clauses (Cont d): Exceptionally arbitration could also be commenced if some or all the conditions precedent were disapplied: Under cl. 20.4[5], which dispenses with the requirement for a DAB decision if the DAB fails to determine within 84 days the dispute placed before it; or Under cl read with cl. 20.4[6], which dispenses with all three conditions precedent if neither party has served a notice of dissatisfaction with the DAB decision PT PGN v CRW Joint Operation (Indonesia) 41 Relevant Red Book Clauses ( ) (Cont d): Combined Effect of Red Book Clauses (Cont d): This creates a contractual security of payment regime which promotes a pay now argue later process The regime facilitates the contractor s cash flow by requiring the employer to pay now, pursuant to the DAB decision, while both employer and contractor remain entitled to argue the underlying merits of the payment obligation later at arbitration Arbitration is the sole method for parties to resolve their disputes with finality

22 PT PGN v CRW Joint Operation (Indonesia) 42 Procedural History: Dispute Adjudication Board In November 2008, pursuant to cl. 20 of the contract, D and P referred their disputes over variation claims to the DAB The DAB found in favour of D P refused to comply with the order of the DAB 2009 Arbitration In 2009, D commenced arbitration seeking only to compel P to comply with the DAB decision (the Secondary Dispute ), placing before the tribunal only the payment dispute, but not the underlying dispute regarding liability for the payments (the Primary Dispute ) By a majority, the tribunal found in favour of D and issued a Final Award requiring P to comply with the DAB decision However, the tribunal also expressly noted that P was at liberty to commence a separate arbitration to have the liability dispute heard and determined on the merits PT PGN v CRW Joint Operation (Indonesia) 43 Procedural History (Cont d): High Court (2010), Court of Appeal (2011) P successfully applied to the High Court in 2010 to have the award set aside. D appealed but the appeal was dismissed by the Court of Appeal 2011 Arbitration In 2011, D commenced arbitration, this time placing both the Primary Dispute and the Secondary Dispute before the tribunal P argued that the arbitration agreement and the International Arbitration Act did not permit an arbitration tribunal to compel P to comply with the DAB decision unless the same tribunal in the same award and not merely in the same arbitration hears the determines the liability dispute on the merits The tribunal rejected P s argument, and issued an interim award compelling P to comply with the DAB decision This award was expressly subject to a further final determination on the liability dispute.

23 PT PGN v CRW Joint Operation (Indonesia) 44 Procedural History (Cont d): D then applied to court for leave to enforce the interim award while P applied to set aside the interim award and the order permitting D to enforce that award Present application was to set aside An arbitration award; and the order of court permitting enforcement of the award PT PGN v CRW Joint Operation (Indonesia) 45 Main Issue: Whether D could enforce an interim award to compel payment pursuant to cl 20 of the Red Book, notwithstanding that the Primary Dispute has not been determined Sub-Issue 1: Is D s approach in the 2011 arbitration consistent with the parties agreement and their contractual dispute-resolution regime? This was essentially a matter of contractual interpretation to determine what the parties intended when they incorporated the Red Book conditions of contract. Held: The security of payment regime in cl 20 of the Red Book permitted the court to enforce an interim award compelling payment based on the DAB s decision, even if the liability dispute had not been determined. This would give effect to the pay now, argue later policy inherent in the security of payment regime. D s approach in the 2011 arbitration gave effect to this policy by placing both the Primary Dispute and the Secondary Dispute before the arbitration tribunal.

24 PT PGN v CRW Joint Operation (Indonesia) 46 Sub-Issue 2: Is the 2011 award a provisional award defective for want of finality? P s Arguments: The 2011 award lacked finality since it was an interim award that was subject to a final determination of the Primary Dispute Section 19B of the IAA does not permit a tribunal to issue such an award since only final and binding awards can be recognised S 19(1) IAA, which requires awards to be final and binding, overrides the tribunal s intent to issue an interim award S 19(2) IAA states that no future award can vary an interim award High Court: Held: The 2011 award, as a provisional award, was not defective for want of finality. PT PGN v CRW Joint Operation (Indonesia) 47 Sub-Issue 3: What effect does the IAA have on the 2011 award? P s Arguments: The combined effect of s 19B IAA was to deem the 2011 award to be a final and binding award. This went against the intention of the parties by determining with finality the Primary Dispute without determining or considering the dispute on its merits. This also rendered the tribunal functus officio in respect of the liability dispute Thus the tribunal had no power to issue the 2011 award which stated that P had to pay D pending the final resolution of the Parties dispute raised in these proceedings D s Arguments: 2011 interim award is not a provisional award but is a final and binding award mandated by s 19B(1). It is final and binding on the Secondary Dispute pending the final resolution of the Primary Dispute. The final award in the arbitration need not vary the 2011 interim award because it will determine with finality a different dispute (i.e. the Primary Dispute) 2011 tribunal is not functus officio because it has determined with finality only one dispute (i.e. the Secondary Dispute), leaving the Primary Dispute to be heard later

25 PT PGN v CRW Joint Operation (Indonesia) 48 Held: s. 19B IAA requires every award to have preclusive effect on its subject matter. It thereby precludes the parties and the tribunal from revisiting the subject-matter of that award. However, s, 19B does not prohibit a tribunal from issuing a provisional award, at the very least in a case where (as here) the parties contract gives them a substantive, contractual right to provisional relief. Thus the tribunal could issue a provisional award. The 2011 Interim Award, such an award, was not invalidated by the provisions of the IAA. PT PGN v CRW Joint Operation (Indonesia) 49 Sub-Issue 4: What effect does the 2011 award have on the ability of the tribunal to consider and determine the Primary Dispute? Held: s. 19B(2) IAA disallows the tribunal in any future award to vary, amend, correct, review add or revoke the 2011 interim award. But Tribunal is perfectly able to dispose the Primary Dispute without breaching s. 19B(2) IAA. Judge held that even if he was wrong in that the IAA does in fact prohibit provisional award and the 2011 interim award is in fact such a provisional award, s. 19B operates only with regard to the Secondary Dispute. The Parties right to have the Primary Dispute determined on its merits with finality, not being the subject-matter of the 2011 interim award, remain unaffected. The merits of the Primary Dispute are not res judicata. Red Book deliberately gives the parties dispute two temporal aspects. S. 19A IAA permits a tribunal to issue a series of interim awards, each is both final and binding on its subject-matter. It is no different where parties contract permits tribunal to divide one dispute before it on temporal lines.

26 PT PGN v CRW Joint Operation (Indonesia) 50 Sub-Issue 5: Can P succeed in setting aside the 2011 award on any of the following grounds: Excess of jurisdiction Breach of rules of natural justice Failure to comply with agreed procedure Held: On the fact, the court found that none of the grounds for setting aside were satisfied. 51 Questions?

27 Thank You 52 Ho Chien Mien T E ho.chienmien@allenandgledhill.com Allen & Gledhill LLP One Marina Boulevard #28-00 Singapore Notes: This presentation is intended to provide general information and is not meant to be exhaustive, comprehensive or authoritative. Allen & Gledhill LLP does not warrant its accuracy or completeness or accept any liability for any loss or damage arising from any reliance thereon. The information in this presentation should not be treated as a substitute for specific legal advice concerning particular situations.