Critical Path

November 2011

Construction site

Contacts

Introduction

Welcome to the November 2011 edition of Critical Path.

In this edition we look at:

  • The Clean Energy Act: changes affecting the construction industry since July’s draft Bills.
  • Defects: Why building owners should not delay investigating the cause of building defects following Cyril Smith & Associates Pty Limited v The Owners-Strata Plan No 64970.
  • Independent contracting: ABCC Inquiry into sham contracting, recent successful prosecutions and transitional arrangements under the Independent Contractors Act 2006 (Cth).
  • Termination of a building contract: Can a claimant under the BCIPA keep bringing claims? Walton Construction (Qld) Pty Ltd v Corrosion Control Technology Pty Ltd & Ors.
  • Security of Payments: Circumstances in which project management services contracts will not be construction contracts for the purposes of Security of Payment legislation following H M Australia Holdings Pty Limited v Edelbrand Pty Limited t/as Domus Homes & Anor [2011] NSWSC 604.
  • Jurisdictional error affects part of an adjudicator’s decision: Will the whole decision fall over? James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd & Ors.
  • Uniform Commercial Arbitration Acts: key developments across Australia.
  • Dispute Resolution Boards scrutinised in Singapore: the FIDIC Conditions of Contract and CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK.

We hope you find these articles interesting and informative. If you have any questions regarding their content, please feel free to contact us.

The Clean Energy Act – Changes affecting the construction industry

Grace McGuinness and Nicole Whitby

Last Tuesday the Senate historically voted to pass the Clean Energy Act 2011 and related legislation. As outlined in our July publication, the carbon price mechanism (the Mechanism) will comprise:

  1. a 3 year fixed price phase from 1 July 2012, at $23 per tonne (indexed 2.5% pa); and
  2. a market-based price phase and emissions trading scheme commencing 1 July 2015.

As passed, the Act contains changes made in the Lower House since the draft Bills were first released in July. This update is provided to assist you in understanding the key changes to the package which could affect you as a participant in the construction industry.

Joint venturers and facility operators

As in the draft Bills, where a facility is operated exclusively on behalf of an unincorporated JV, the JV partners may voluntarily assume direct liability for emissions as a “declared designated joint venture”.

More JVs may now benefit from this mechanism, including where:

3.   one joint venture partner or more is a foreign person; or

4.   the operator of the facility is one of the joint venture partners.

The facility operator is no longer required to guarantee payments by the JV partners. This requirement negated the benefit of this mechanism for operators in the draft Bills. However, liability can now revert to the operator if a JV partner fails to make payment for more than three months.

Large users of taxable fuel

Under the draft legislation the Mechanism did not apply to emissions from the combustion of transport fuels.   From 1 July 2013, large users of liquid fuel will now have the option of managing their own carbon liability directly under the Mechanism instead of paying the equivalent carbon price through the fuel tax system. The government has indicated that it will consult publicly on this scheme.

Natural gas suppliers

The Mechanism now applies to “natural gas suppliers” rather than “natural gas retailers”. Suppliers are now liable for emissions from natural gas when:

  1. the natural gas has been withdrawn from a natural gas supply pipeline to supply to a customer (other than large users with their own direct liability);
  2. it may reasonably be expected that the customer will consume all or part of the gas; and
  3. the customer does not quote an Obligation Transfer Number (OTN).

There is now no reference to “transmission” and “distribution” pipelines. Rather all “natural gas supply pipelines” are covered unless specified by regulation.

Other changes

Of interest to all industries generally, the Legislation contains changes concerning:

  1. disclosure of significant holdings of carbon units;
  2. legal title to carbon units;
  3. clean energy investment plans in the Energy Security Fund;
  4. clarification of anti-avoidance provisions;
  5. operation of an equivalent carbon price on synthetic greenhouse gases;
  6. the Clean Energy Regulator’s registration and suspension powers under the Renewable Energy Target;  and
  7. the functions and qualifications of the Land Sector Biodiversity and Carbon Board.

Reminder

With the Legislation to take effect on 1 July next year, investment decisions should take into account more than just capital costs. Projections of ‘whole-of-life’ costs need to consider the annual changes during the fixed phase of the carbon price and those associated with a fluctuating carbon price when the system moves to a market based price in 2015.

Please contact us if you would like further details on any aspect of the Clean Energy Legislation.

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Building defects and limitation periods – the clock is ticking

Brad Spiers and Nicole Whitby

The NSW Court of Appeal decision in Cyril Smith & Associates Pty Limited v The Owners-Strata Plan No 64970 [2011] NSWCA 181 serves as a reminder that building owners should investigate building defects as early as possible.

Background

The case concerned an eight storey residential building which was completed in early 2001. By the end of that year, it had become apparent that there were problems with the building including water ingress through windows which caused damage to the units and the steel structure supporting the roof.

The Owners Corporation commenced proceedings in 2005 claiming damages from the builder. In February 2008, the Owners Corporation joined the architect to the proceeding alleging negligence.

Supreme Court finding

The Owners Corporation obtained judgement against the builder and architect respectively. The builder also obtained judgement for contribution against the architect.

Issues on appeal

The architects appealed the decision on the basis that the cause of action accrued in 2001, when water ingress was identified by the Owners Corporation, and accordingly the six-year limitation period for bringing a claim had expired by 8 February 2008. It relied on s 14(1) of the Limitation Act 1969 (NSW), which stipulates that proceedings founded on contract or tort must be commenced within six years “running from the date on which the cause of action first accrues”.

Accordingly, the issue before the Court of Appeal was when the cause of action first accrued to the Owners Corporation.

Court of Appeal – findings

The Court found that where there has been negligent construction of a building, the relevant loss accrues “when the defects becomes manifest or are otherwise discovered”. Importantly, the Court held that it is the physical defect that must be known or manifest, not that the cause of the defect must be identifiable. The defect was therefore “the windows” (because they were not adequately weather proof) and not the design or installation of the windows or the physical consequences of the water ingress.

The Court held that the Owners Corporation was aware of water penetration through the windows (being the “defect”) in 2001 and, as it had failed to bring its claim against the architect within six years of accrual of the cause of action, its claim against the architect was time-barred.

What do you need to know?

Building owners should investigate all signs of leaking or damage and take steps to enforce any rights at law against the parties responsible for defective works as soon as possible. It is particularly important that building owners investigate issues that may be symptomatic of an underlying latent defect, such as a structural problem, which may be expensive to remedy.

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Sham contracting: Transition and successful prosecutions

Lucy Watts with thanks to Sally Woodward

Principals and workers need to fully understand the distinction between an independent contractor and an employee and how these classifications can affect their rights and obligations, particularly with respect to tax, superannuation and workplace entitlements and liabilities. Employers, and also their workplace advisers, should be wary of entering into any labour arrangement to ensure they comply with the Independent Contractors Act 2006 (Cth) and do not breach the sham contracting provisions under the Fair Work Act 2009 (Cth).

Regulation of Independent Contracting

Independent contracting is a common form of engaging services within the construction industry.

The operative provisions of the Independent Contractors Act 2006 (Cth) (IC Act) commenced on 1 March 2007. Prior to the IC Act, some independent contractors may have been 'deemed' to be employees under some state and territory laws. The IC Act sought to exclude the operation of certain of these state and territory laws. One of the key consequences of the IC Act is that it is the law of commercial contracts, and not employment law, which regulates genuine independent contracting arrangements.

Transitional arrangements – what you need to know

The IC Act provided for transitional arrangements in relation to independent contracting arrangements entered into before 1 March 2007 which did not "opt-in" to the IC Act. Those transitional arrangements came to an end on 1 September 2011. Accordingly, certain State and Territory laws that may have deemed certain contractors to be employees will no longer apply (other than laws dealing with outworkers and owner-drivers). As a result, those parties to ongoing independent contracting arrangements entered into before 1 March 2007 who have not 'opted-in' to the IC Act should be aware that, in circumstances where the contractors continued to have rights to be deemed employees under State and Territory laws, the end of the transitional period may trigger a right to accrued entitlements, such as leave. Such arrangements should be reviewed accordingly.

Sham Contracting - ABCC Inquiry

The Australian Building and Construction Commissioner (ABCC) has recently announced the Sham Contracting Inquiry (ABCC Inquiry). A sham contracting arrangement is where an employer attempts to disguise an employment relationship as an independent contracting arrangement. Certain activities with respect to sham contracting are prohibited under the Fair Work Act 2009 (Cth) (FW Act), including knowingly making false statements to persuade an employer to become an independent contractor and misrepresenting an employment relationship as an independent contracting arrangement (see Division 6, Part 3-1 of the FW Act).

The ABCC Inquiry sought to address a number of concerns with respect to sham contracting. These include the misuse of the label ‘independent contractors’ to enable underpayment or non-payment of workers’ compensation, removing grounds for unfair dismissal claims and avoidance of other rights and entitlements provided by industrial awards, particularly with respect to accrual and payment of leave entitlements. After receiving written submissions from a number of stakeholders and conducting a series of roundtables across the nation the ABCC is currently finalising its report into sham contracting.  

Update on recent prosecutions

This year has seen a number of successful prosecutions for sham contracting offences by both the Fair Work Ombudsman and the ABCC, two of which are highlighted below.

In Fair Work Ombudsman v Centennial Financial Services Pty Ltd [2011] FMCA 459 Federal Magistrate Cameron found that a director and the human resources manager of Centennial Financial Services had breached various provisions of the Workplace Relations Act 1996 (WR Act) with respect to the accrual of unpaid annual leave entitlements and unlawfully converting employees to independent contractors. The former owner and sole director of Centennial Financial Services was fined $13,200 and the former human resources manager was fined $3,750. The Court found that, despite the human resources manager exercising no independent judgment and being overborne by the director, he should have been aware of, and at least attempted to give advice on, the company’s legal obligations.

In ABCC v Rapid Formwork Constructions Pty Ltd and Anderson Federal Magistrate Neville imposed penalties of $24,000 on Rapid Formwork Constructions Pty Ltd (Rapid) for contraventions of the FW Act and WR Act as a result of misrepresentations of the terms and conditions of employment of two hired workers. Mr Kevin Anderson (Anderson) was also fined $1,500 for breaches of the WR Act as a result of these findings. In addition to these fines, Rapid and Anderson also agreed to back-pay the two workers nearly $7000 in unpaid wages and entitlements.

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Security of payment after termination: Walton Construction and Corrosion Control Technology

Contract is terminated: can a claimant under the BCIPA keep bringing claims?

Peter Borg and Tom Heading

Introduction

Your contract is terminated and there are amounts still owing to you – can you use the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) to make another claim? The answer, according a recent Queensland Supreme Court decision, is only if you have an available reference date which arose before termination because reference dates (being dates from which a payment claim can be made) stop accruing post termination.  

This decision is unique to Queensland. For example, current law states that reference dates will accrue post termination under the New South Wales equivalent of the BCIPA.

Recap: what are reference dates?

A claimant under the BCIPA can only serve a payment claim from each reference date.

A reference date is (essentially) a date stated in the contract on which a claim for a progress payment may be made. If the contract says the contractor can make a progress claim, payment claim or claim for payment, whatever it happens to be called, on the 25th day of each month, then the reference date will be the 25th day of each month.

A claimant can only make one payment claim from each reference date. So a claimant who serves a claim on 27 October 2011 cannot then serve another payment claim until 25 November 2011; if it does, the later payment claims up until 25 November 2011 will be void.

What you need to know

If making a claim under the BCIPA then remember that no more reference dates will accrue post termination of the contract.

So if your contract provides that the reference date is the 25th day of each month and the contract is terminated on 1 December 2011, the only reference date left available to a claimant will be 25 November 2011. Because the claimant can only serve one payment claim for each reference date, it will only have one more opportunity to serve a valid payment claim under the BCIPA.

Therefore, if a claimant is planning to serve one claim on 4 December 2011 thinking that it will have another chance to put in another claim from 25 December 2011, think again. It will, according to that example, only have one shot at adjudication post termination.

However there is an exception: reference dates will continue to accrue post termination if the contract includes a term that the right to make a progress claim survives termination. This is a rare, almost non-existent, clause (you can understand why – it doesn’t make much sense for a contractor to have a right to submit claims for payment post termination). However it is worth bearing mind when negotiating your contract.

The case

The principle that reference dates do not accrue post termination was determined by the recent Queensland Supreme Court decision of Walton Construction (Qld) Pty Ltd v Corrosion Control Technology Pty Ltd & Ors [2011] QSC 67.

The contract set the reference date as the 21st day of each month. The contract was terminated on 15 January 2010. The subcontractor served payment claims on 21 February 2010 and 22 March 2010. The subcontractor sought adjudication of the 22 March 2010 payment claim. The adjudicator’s decision for the 22 March 2010 payment claim was void because it was the second payment claim made for the 21 December 2009 reference date; reference dates did not accrue post termination.

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Project Management Services Contracts – outside the scope of Security of Payment Legislation: HM Australia Holdings v Edelbrand

Lucy Watts

Introduction

In welcome news for principals (and more surprising news to project managers), the New South Wales Supreme Court has held that a contract for project management services does not fall within the ambit of Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).

Background

HMAH and Domus entered into a contract for the provision of project management services in connection with the construction of a warehouse in Riverwood, NSW (Contract).
 
Domus claimed a bonus of $195,376.00 (plus GST) by way of payment claim however a payment schedule was never served by HMAH. Consequently, Domus made an adjudication application. Although this initial application was withdrawn a second adjudication application was served on HMAH and Phillip Davenport (Adjudicator). The Adjudicator determined the amount payable as being $214,913.60 (incl GST) (Adjudication Determination).

HMAH sought judicial review of the Adjudication Determination.

Was there a construction contract to which the Act applies?

Section 4 of the Act defines 'construction contract' as: "A contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party."

'Related goods and services' is defined in section 6(1)(b) of the Act as being services of the following kind:

  1. "the provision of labour to carry out construction work;
  2. architectural, design, surveying or quantity surveying services in relation to construction work;
  3. building, engineering, interior or exterior decoration or landscape advisory services in relation to construction work…"

The courts have previously held that it is not necessary for all work under the contract to fall within the definition, all that is required is merely some of it does (Brian Leigh Smith & Anor v Coastivity Pty Ltd [2008] NSWSC 313) (Coastivity).

Under the Contract, Domus undertook to provide a variety of services including, amongst other things:

  • coordinating survey and geotechnical investigation;
  • finalising the architectural brief in consultation with HMAH;
  • coordinating updates of building cost estimates and rectification of defects;
  • coordinating consultants to finalise the construction contract documents;
  • managing consultants and the builder to deliver the project in accordance with the building contract;
  • attending site meetings and inspections; and
  • providing instructions to the builder and consultants.

Adjudication Determination

The Adjudicator was satisfied that the Contract was a 'construction contract' for the purposes of the Act as some of the services provided by Domus seemed to be those which an architect often provides.

Determination of the Court

Einstein J relied on the decision of McDougall J in Coastivity and held that it is the terms of the agreement, and not the actual work performed, that must be construed to determine if a 'construction contract' as defined in the Act exists.  

His Honour found that none of Domus’ obligations were anything more than an obligation to coordinate the services of those carrying out 'related services'. Simply coordinating, controlling, managing and supervising services which may fall within the provisions of the Act (which will be performed by others) is not the same as undertaking to actually provide those services.  

Consequences for project managers

It is now clear that coordination of services falling within the Act is not sufficient to trigger the provisions of the Act.  

In light of the above, whether a contract for project management services is a 'construction contract' for the purposes of the Act will come down to what obligations are required of the project manager in the contract.  

What you need to know

When drafting project management agreements, consideration will need to be given to the actual work that the project manager will be required to perform and whether some services that do fall within the definition of 'related goods and services' should be included in the terms of the contract. When considering payment claims and payment schedules in connection with project management agreements the terms of the contract will need to be examined to determine whether the relevant security of payments act applies. Even where it appears that the Act is not triggered, in order to protect the interests of the project manager or principal (particularly in jurisdictions outside of NSW where the case is yet to be upheld), it may still be prudent to serve a payment claim or payment schedule, whichever is applicable.

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Jurisdictional error in adjudications: James Trowse v ASAP

Part of an adjudicator’s decision is infected by jurisdictional error: will the whole decision fall over?

Peter Borg and Tom Heading

You have an adjudicator’s decision in your favour under the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) however part of your claim or part of the adjudicator’s decision is invalid – what happens now? The answer, according a recent Queensland Supreme Court decision, is that the whole decision will fall over even if only one small discrete part of the claim or the adjudicator’s decision is invalid.

What you need to know: the claimant’s perspective

If you are a claimant seeking to make a claim under the BCIPA, check that everything you are claiming can be validly claimed under the BCIPA. Examples of what cannot be claimed include (among many others):

  1. claims which have been decided by an earlier adjudicator (whether awarded or not);
  2. claims which are not for construction work (or for related goods or services), such as the extraction, whether by underground or surface working, of minerals, including tunnelling or boring, or constructing underground works, for that purpose (expressly not construction work under the BCIPA); or
  3. future costs, i.e. costs for which you have neither incurred nor accrued a liability for (unless your contract provides you are entitled to claim such costs, which is rare).

If you as a claimant include an amount which cannot be validly claimed in your payment claim and adjudication application and the adjudicator decides an amount in your favour based on an invalid part of the claim, then the whole adjudicator’s decision will be void. You then will need to start the whole BCIPA process again if you still wish to seek relief under the BCIPA.

What you need to know: the respondent’s perspective

If you are a respondent, the avenues available to you to seek a court order that a whole adjudicator’s decision is void, even if only part of it is invalid, have expanded.

This principle will assist a respondent if an adjudicator’s decision is made awarding an amount to the claimant and the respondent can establish that part of the adjudicator’s decision is void. In that situation the whole adjudicator’s decision will be void.

For example, the whole of an adjudicator’s decision for say $20 million, which includes a variation for future prolongation costs (not a valid claim) worth say $50,000, may be declared void.

The case

The principle that the whole of an adjudicator’s decision is void if part of that decision is void was determined by the recent Queensland Supreme Court decision of James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd & Ors [2011] QSC 145.

ASAP Plasters made an adjudication application under the BCIPA including claims for a number of variations. The adjudicator decided amounts for ASAP Plasterers including for “Variation 24” which made up about 10% of the whole claim. The adjudicator decided “Variation 24” on a point with neither party had put forward in their submissions; therefore the adjudicator denied the parties natural justice because they did not have an opportunity to make arguments about the point which ultimately decided the claim for “Variation 24”. A claim for which an adjudicator fails to afford the parties natural justice is void. That was only the case for “Variation 24” not the other parts of the adjudicator’s decision. However because just one part of the adjudicator’s decision was void the whole adjudicator’s decision was void. One part of an adjudicator’s decision which is invalid cannot be severed from the main valid part of an adjudicator’s decision to save the rest of the adjudicated amount.

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Uniform arbitration legislation – Developments around Australia

Peter Anagnostou

In this article we consider the Commercial Arbitration Bill 2010 (Cth) and its progress across the States and Territories towards enacting the uniform national legislation.

What is it?

The Bill is intended to align Australian domestic arbitration processes with international arbitration processes, enhancing the powers of arbitrators and increasing efficiency and certainty by reducing the scope for intervention by Courts.

The Standing Committee of Attorneys-General agreed on the wording for the uniform legislation in May 2010. To date, NSW, Victoria, South Australia, Tasmania and the Northern Territory have brought uniform legalisation into effect. Western Australia has introduced a Commercial Arbitration Bill into parliament leaving Queensland and Canberra as the only states/territories yet to introduce a bill.

Each State’s legislation also includes optional provisions for arbitration agreements should a dispute arise and transitional arrangements for the introduction of the Act.

Why has it come about?

Participants in the construction industry are well aware that it is the source of some of the most complex and technical legal disputes. This complexity has demanded the use of expert determinations, adjudication, litigation and arbitration to resolve the various types of dispute. In Australia, arbitration has historically been the least popular of these. Criticisms concern cost, efficiency, certainty and uniformity.

A lack of uniformity across the States has caused uncertainty as to the enforceability and finality of arbitration awards in Australia. Claimants have often preferred more traditional means of dispute resolution such as litigation.

Criticisms as to cost and efficiency in arbitration are not unique to Australian domestic arbitration. A study of the Corporate Counsel International Arbitration Group in 2010 found that 100% of the corporate counsel participants believe that international arbitration “takes too long” and “costs too much”.

The Bill was enacted in 2010 to combat the above limitations of arbitration in Australia.

The NSW Act

The Commercial Arbitration Act 2010 was enacted on 28 June 2010 and came into force on 1 October 2010. The paramount objective of the uniform legislation, as stated in the Act, is to facilitate the “fair, quick, cost effective and final resolution of disputes by arbitration by allowing the parties greater procedural control and further restricting the basis for court intervention and appeals of arbitral awards.” 

Around Australia

The current status of the legislation around the other jurisdiction is as follows:

  1. Commercial Arbitration (National Uniform Legislation) Act (NT) 2011 – this Act was assented to on 31 August 2011 and contains minor technical amendments to the NSW Act. The Act will commence on a day to be fixed by the Territory Administrator by Gazette notice.
  2. Commercial Arbitration (Consequential Amendments) Act (TAS) 2011 – this Act was passed by both Houses of Parliament and given the Royal Assent on 7 September 2011. It is consistent with the NSW Act and has yet to come fully into force.
  3. Commercial Arbitration Act (VIC) 2011 – this Bill was introduced into parliament on 16 August 2011 and assented to on 18 October 2011. The Act contains minor technical amendments to the model Bill to make it consistent as far as possible with the Commercial Arbitration Acts already passed in NSW and Tasmania. The Act will commence on a day to be fixed by proclamation.
  4. Commercial Arbitration Bill (WA) 2011 – this Bill was introduced into parliament on 15 June 2011 and has yet to come into force.
  5. Commercial Arbitration Bill (SA) 2011 – this Bill was introduced into parliament on 4 May 2011 and was assented to on 22 September 2011. It will commence on proclamation.
  6. Queensland and Canberra have yet to introduce a Bill.

What can we expect?

Assuming the uniform laws are adopted throughout Australia, it will only be a matter of time before confidence returns and arbitration will take its place as a reliable and viable alternative to litigation in construction disputes.

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Dispute Resolution Boards scrutinised in Singapore

Peter Anagnostou

In this article we consider recent case law in Singapore that confirms that arbitral tribunals have an obligation to review the decisions of Dispute Adjudication Boards under Clause 20.6 of the FIDIC Conditions of Contract for Construction before declaring them final.

The Case

In CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33, Indonesia's state-owned gas company, Perusahaan Gas Negara (PGN), had hired Indonesian Joint Venture (CRW) to design, procure, install, test and pre-commission an optical fibre cable in Indonesia (the Contract).

The Contract adopted standard “conditions of contract” set out in the 1999 FIDIC Red Book.  Standard FIDIC forms of contracts contain requirement for disputes to be referred to a Dispute Adjudication Board (DAB) for its decision in the first instance.

When a dispute arose between the parties regarding variation proposals issued by CRW to PGN, it was accordingly referred to a DAB. The DAB heard the dispute and made several decisions, all of which were accepted, save for one which required PGN to pay CRW the sum of US$17,298,834.57. In accordance with the procedure set out in the Contract, PGN issued a Notice of Dissatisfaction (NOD) alleging the amount awarded by the DAB was excessive and refused to pay.

The matter remained unresolved and on 13 February 2008, CRW filed a request for arbitration with the ICC pursuant to Clause 20.6 of the Contract, with the seat of the arbitration being Singapore. PGN argued that the DAB decision was not “final and binding” and could therefore not be converted into a final arbitral award without the arbitral tribunal first determining whether the DAB decision was correct on the merits. In a “final award” the majority of the ICC arbitral tribunal confirmed that Clause 20.7 does not involve an enquiry into the merits of the DAB decision and that PGN should immediately pay the US$17,298,834.57.

CRW subsequently took out an application before the High Court of Singapore to register the award as a judgment in Singapore. PGN applied to Court to set aside the registration order. The High Court set aside the arbitral award pursuant to Section 24 of the Singapore International Arbitration Act and Article 34(2) of the Model Law since the Contract did not entitle the arbitral tribunal to make the DAB decision final without first hearing the parties on the merits of the decision.

CRW appealed to the Singapore Court of Appeal. On 13 July 2011, the Court considered this issue and approved the set-aside of the ICC arbitration award in favour of CRW on the grounds that the arbitral tribunal had failed in this obligation. The court also held that Clause 20.6 of the Contract and Terms of Reference made it clear that the arbitral tribunal was to decide not only whether CRW was entitled to immediate payment but also, in respect of a binding but non final DAB decision, additional issues of fact or law which the tribunal deemed necessary so that the entirety of the parties disputes can be resolved afresh.

What will be the impact?

This is the first judicial case in which the concept of an interim award to enforce a DAB decision under Clause 20.6 has been discussed and this ruling confirms that arbitral tribunals have an obligation to review the decisions of DABs before declaring them final.

The case also provides a test for whether a DAB decision should be enforced by means of arbitration under Clause 20.6 or Clause 20.7, contingent on whether a valid NOD has been submitted and consequently, whether the DAB decision is “final and binding” or merely “binding”.

This ruling could also impact on new trends of expert determination, which are final and binding only in an interim sense, reserving the more complex and mature disputes for arbitration. Such expert determinations could now be subject to the same obligation of merit review by an arbitral panel as DABs.

What do you need to do?

The message from this ruling is that it is critical to ensure that the DAB decision is enforced by arbitration under the correct provision of the relevant arbitration agreement to help avoid a challenge to or overturning of the award.

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