I have been hooked up to contribute to the LEADR/IAMA ‘kon gres in Adelaide on 15 September this year, to talk about review boards.
Review boards are plainly important. In the old days, the alternatives to litigating construction contracts in the courts (plainly, a hugely inefficient process) were arbitration, with a sprinkling of mediation. That has all changed now. If we had to describe the alternatives these days, a somewhat crude analysis would be that they are adjudication with (in the case of major projects) a sprinkling of review boards.
There is quite a lot to say about review boards; in the case of major projects, they provide the opportunity for a much more intelligent and efficient way of both preventing disputes, and if disputes are inevitable, of resolving them. For this particular session, I will be sharing the task of talking about them with Patrick O’Sullivan. One of my topics is to talk about enforcement, and so I will have to say something about the decision in PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2015] SGCA 30.
Rather than shoot my own fox for the excitement on the day for my analysis of this judgment, which runs to 160 pages, I will say just couple of things about this case now. It is a decision of the Court of Appeal in Singapore which enforced a decision of a dispute adjudication board pursuant to the FIDIC Redbook. There are all sorts of variants of the review board concept, and in this particular variant, the board makes binding decisions, very much along the lines of an evaluative adjudication decision under the English or the Australian West Coast model.
The first is just a nomenclature point. The case has been widely referred to as the “Persero” case. As I understand it, the merely identifies a company which is majority owned by the Indonesian government. Wikipedia says this:
State-owned enterprises are easy to recognise by their names. Company names with suffix PERSERO mean that the company is wholly/majority owned by the government.
So to refer to this case as “Persero” is no more meaningful than referring to a case as “plc” or “Pty Ltd”. Except perhaps for this point. That for this particular Indonesian state-owned company to be so delinquent for so long in honouring the board’s decision stigmatises the whole of the Indonesian state-owned community of companies. A cheap point, perhaps. Let us move onto the second point.
This was a substantial energy contract for a gas pipeline from South Sumatra to West Java. The terms of contract were modelled on the 1999 FIDIC Redbook conditions. These conditions included provision for a dispute adjudication board, and in particular, at clause 20.4:
20.4 Obtaining Dispute Adjudication Board’s Decision
[1] 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, either Party may refer the dispute in writing to the DAB for its decision, with copies to the other Party and the Engineer. Such reference shall state that it is given under this Sub-Clause.
[4] Within 84 days after receiving such reference, or within such other period as may be proposed by the DAB and approved by both Parties, 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. …
Now, you might think that the words “binding on both parties, who shall promptly give effect to it” would mean not only that the decision was binding on both parties, but also that they should promptly give effect to it. In this case, the relevant decision – DAB No 3 – was conveyed to the parties on 19 November 2008. It required PNG – the Persero – to pay CRW the sum of US$17,298,834.57. But PGN did not pay this amount. The decision of the Singapore Court of Appeal a couple of months ago was that they should pay it. What is remarkable is that this decision has come some 6 ½ years after the original decision was supposed to be promptly given effect to. Even then, the decision was a majority decision, with the minority decision by Chan Sek Keong SJ running to some 95 pages. To cut a very long story very short, the drift of Chang SJ’s dissension was that, instead of CRW enforcing that original decision by way of the intermediate arbitration, it ought to have done so by way of originating action. So he would have sent them away empty-handed.
There might be a couple of morals here. The first is that, based on the experience of this case, Indonesian Perseros are hardly reliable contracting partners. As the world becomes increasingly a global village, it may well be that these reputational issues become more and more important, and persuade government-owned enterprises to behave more responsibly.
But secondly, there is the thought that whilst the march towards more sensible and responsible ways of resolving construction disputes does appear to be satisfyingly inexorable, it is nevertheless a slow and stumbling process. That a senior judge in Singapore, albeit in the minority, should yet be more concerned account the number of angels who might dance on a pinhead, rather than robustly enforce the plain commercial intent of a commercial contract, is indicative that we have a way to go before the bad old days of legal niceties are eventually banished.
It would be easy to exaggerate the problem. Dispute boards generally have proved hugely successful, and particularly based upon the Australian initiative, the emphasis is on preventing issues from turning into full blown disputes in the first place. If that does not happen, then the usual regime is that the parties will give effect to a non-binding but nevertheless formal process whereby the respective arguments of the parties are ventilated, and subjected to the crucible of a high-calibre legal process. The enforceable aspect of a board decision, if provided for at all, typically only cuts in both of these prior processes fail, and usually they do not fail. I spend a hunk of my time these days doing dispute board work, and I am very conscious that the majority of our effort is “upfront”, and I have yet to be required in this context to make a binding decision at all (this in contrast to adjudication, in which I have made a number of binding decisions).
This is not to advocate an entirely “touchy-feely” approach to the resolution of construction disputes. There are two good reasons why parties resolve construction disputes on a sensible basis. The first is that they want to preserve their commercial relationships, and their reputation in the marketplace. This is often a good reason, but exceptionally it is not. In those exceptional cases, the reason for adopting a sensible approach is that to do otherwise exposes the risk of being hammered by the legal process. It does no good at all, as a matter of motive, for the courts to reward behaviour which flies in the face of the commercial deal that the parties did in the first place. If that commercial deal is the decisions of boards need to be promptly given effect to, the courts could and should enforce that commercial deal. And preferably, more rapidly than 6 ½ years later.