When Does an Arbitral Tribunal Exceed Its Mandate? The CRW Joint Operation Case on Annulment Grounds

Japanese Attorney at Law - Bengoshi L.L.

• 10 min read

International arbitration is founded on party consent. Arbitral tribunals derive their authority solely from the arbitration agreement and the scope of the dispute submitted to them by the parties. A fundamental principle underpinning the legitimacy and enforceability of arbitral awards is that the tribunal must act strictly within the confines of this mandate. When a tribunal strays beyond these boundaries—either by deciding matters not entrusted to it (ultra petita) or by failing to decide matters that were (infra petita)—its award may be vulnerable to annulment. The Singapore Court of Appeal's decision in CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK ([2011] SGCA 33), delivered on July 13, 2011, provides a crucial illustration of these principles, particularly within the intricate framework of multi-tiered dispute resolution common in international construction contracts, such as those based on FIDIC forms.

I. The FIDIC Framework and the Dispute Adjudication Board (DAB) Process

Understanding the CRW v. PGN case requires a brief overview of the dispute resolution mechanism under the FIDIC Conditions of Contract for Construction (1999 Red Book), which the parties had, with some modifications, adopted for their pipeline construction project in Indonesia.

FIDIC contracts typically incorporate a multi-tiered approach to dispute resolution, designed to resolve disagreements efficiently and, where possible, without immediate recourse to arbitration. A key feature is the Dispute Adjudication Board (DAB).

  1. DAB Referral: When a dispute arises, either party may refer it to the DAB.
  2. DAB Decision: The DAB is required to give its decision within a specified period. Under Clause 20.4 of the FIDIC Red Book 1999, this decision is "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."
  3. Notice of Dissatisfaction (NOD): If either party is dissatisfied with the DAB's decision, it may, within 28 days of receiving the decision, give a Notice of Dissatisfaction (NOD) to the other party, with a copy to the DAB. If no NOD is issued within this period, the DAB's decision becomes "final and binding."
  4. Amicable Settlement: If an NOD is issued, Clause 20.5 requires the parties to attempt to settle the dispute amicably before commencing arbitration.
  5. Arbitration: If amicable settlement fails within 56 days after the NOD, or if a party fails to comply with a "final and binding" DAB decision (i.e., one where no NOD was issued, per Clause 20.7), the dispute can be referred to international arbitration for final settlement (Clause 20.6). Crucially, when a dispute is referred to arbitration after an NOD has been issued against a (merely) "binding" DAB decision, the arbitral tribunal has the 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." This implies a full merits review of the DAB's decision.

The ambiguity that often arises, and which was central to CRW v. PGN, is: if a party issues an NOD (making the DAB decision binding but not yet final) but then fails to comply with the DAB's decision (e.g., fails to make a payment ordered by the DAB), what recourse does the other party have to secure prompt compliance with that "binding" DAB decision, pending the full merits review in arbitration?

II. The CRW v. PGN Dispute: From DAB to Arbitration

In this case, CRW Joint Operation (the contractor) and PT Perusahaan Gas Negara (PGN, the employer) had a dispute over payments for a pipeline project.

  • The dispute was referred to a DAB, which, on November 25, 2008, issued a decision largely in favor of CRW, ordering PGN to pay approximately USD 17.3 million.
  • PGN timely issued an NOD on November 28, 2008, expressing its dissatisfaction with the DAB decision, but then failed to make the payment.
  • On February 13, 2009, CRW initiated ICC arbitration against PGN. In its Request for Arbitration, CRW sought an award compelling PGN to make "prompt payment" of the sum awarded by the DAB, effectively seeking enforcement of the DAB's decision rather than an immediate merits review of the underlying claims.
  • PGN, in its defense, argued that because it had issued an NOD, it was not obliged to make the payment ordered by the DAB until the arbitral tribunal had conducted a full merits review of the DAB's decision, as contemplated by FIDIC Clause 20.6.

III. The Arbitral Tribunal's Approach and Award

The ICC arbitral tribunal, constituted in Singapore (the agreed seat), decided to address certain "Preliminary Issues." These included: (a) whether CRW was entitled to immediate payment of the USD 17.3 million awarded by the DAB, and (b) whether PGN was entitled to have the tribunal review the merits of the DAB decision in that same arbitration.

After a hearing on these preliminary issues, the tribunal issued an award on November 24, 2009. This award:

  1. Ordered PGN to immediately pay CRW the approximately USD 17.3 million as determined by the DAB.
  2. Declared that PGN was not entitled to require the current arbitral tribunal to open up, review, and revise the DAB's decision on the merits.
  3. However, the award also stated that PGN retained the right to commence a separate, new arbitration if it wished to seek a different decision on the merits of the underlying dispute.

This approach by the tribunal was problematic. It purported to finally enforce the DAB's monetary decision while simultaneously deferring (and requiring a new arbitration for) the merits review that PGN was entitled to under FIDIC Clause 20.6 following its NOD.

IV. The Annulment Proceedings in Singapore: A Tale of Two Courts

CRW obtained an order in the Singapore High Court to enforce the arbitral award. PGN applied to set aside this enforcement order and, more fundamentally, to set aside the arbitral award itself.

  • Singapore High Court (July 20, 2010): The High Court agreed with PGN and set aside the arbitral award. CRW appealed this decision.
  • Singapore Court of Appeal (July 13, 2011): The Court of Appeal dismissed CRW's appeal, thereby upholding the High Court's decision to set aside the arbitral award. The Court of Appeal's reasoning focused on two primary grounds for annulment under Singapore's International Arbitration Act (IAA), which incorporates the UNCITRAL Model Law:A. Award Dealing with Matters Beyond the Scope of Submission / Failure to Decide Submitted Matters (Model Law Art. 34(2)(a)(iii)):
    The Court of Appeal found that the arbitral tribunal had indeed exceeded its mandate or, more accurately, failed to decide the dispute actually submitted to it.B. Breach of Rules of Natural Justice (Singapore IAA Section 24(b)):
    Section 24(b) of Singapore's IAA allows an award to be set aside if "a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced."
    • The Tribunal's Mandate: The court determined that the dispute referred to arbitration following PGN's NOD was the underlying substantive dispute that the DAB had decided. CRW's Request for Arbitration, while framed as seeking "prompt payment," was made under FIDIC Clause 20.6, which envisages a final settlement of the dispute by the arbitral tribunal, including a merits review if an NOD has been issued. The Terms of Reference for the ICC arbitration also reflected that the tribunal was to resolve the dispute arising from PGN's NOD.
    • Tribunal's Deviation: The tribunal, however, did not conduct this merits review. Instead, it treated CRW's application as one for summary enforcement of the DAB decision and then declared that PGN would have to initiate a new and separate arbitration for a merits review. This, the Court of Appeal found, was not what the parties had submitted to this tribunal under Clause 20.6. The tribunal had effectively decided a different dispute (summary enforcement of a DAB decision as a final remedy) and failed to decide the actual underlying dispute (the merits of the USD 17.3 million claim) which was properly before it.
    • Actual Prejudice: This failure caused actual prejudice to PGN. It was ordered to pay a significant sum without a merits review in that proceeding and was improperly burdened with the prospect of initiating a fresh arbitration (with attendant costs and delays) to obtain the merits review to which it was contractually entitled in the arbitration CRW had commenced.
    • The Right to Be Heard: The Court of Appeal found that the tribunal's hearing on September 16, 2009, was explicitly designated and understood by the parties as being limited to the "Preliminary Issues" concerning the enforceability of the DAB decision pending a merits review. PGN was not on notice that this hearing would be its only opportunity to address the substance of the underlying dispute or the quantum of CRW's claims.
    • No Full Opportunity: By proceeding to make a final award ordering payment based on the DAB amount without conducting a further hearing or process dedicated to the merits and quantum (after determining the preliminary issues), the tribunal deprived PGN of a full and effective opportunity to present its case on these substantive matters. This was a breach of natural justice.
    • Prejudice: This breach clearly prejudiced PGN, as it was prevented from arguing that the USD 17.3 million sum determined by the DAB was incorrect or excessive.

V. The Correct Approach? The Court of Appeal's Guidance on Enforcing "Binding but not Final" DAB Decisions

While annulling the award due to the tribunal's flawed approach, the Singapore Court of Appeal provided valuable guidance on how a tribunal could have appropriately managed the situation to respect both the binding nature of the DAB decision (pending arbitral review) and PGN's right to a full merits review in the arbitration.

The Court of Appeal suggested that the proper course for the arbitral tribunal would have been:

  1. To recognize that the DAB decision, despite the NOD, remained "binding" and required prompt compliance by PGN.
  2. Within the single, ongoing arbitration commenced by CRW under Clause 20.6, the tribunal could have issued an interim or partial award ordering PGN to pay the DAB-quantified sum to CRW. Such an interim or partial award would give effect to the immediate binding nature of the DAB decision.
  3. Having made such an interim or partial award for payment, the same tribunal would then proceed, in the same arbitration, to conduct the full merits review of the underlying dispute, as envisaged by Clause 20.6.
  4. If the tribunal's final award on the merits resulted in a different quantum (either higher or lower) than the DAB decision, appropriate adjustments (e.g., repayment by CRW or further payment by PGN) could then be ordered.

This approach, the Court of Appeal indicated, would have properly balanced the FIDIC scheme's intention for prompt compliance with DAB decisions with the right of a dissatisfied party to a full merits review in arbitration. The Court cited ICC arbitral practice (e.g., ICC Case No. 10619, involving an engineer's decision under the FIDIC 1987 Red Book) and commentary supporting the use of interim or partial awards to enforce provisional but binding decisions like those from a DAB, pending a final review. Later FIDIC publications, such as the FIDIC Gold Book (2008) and a 2013 Guidance Memorandum for users of the 1999 contracts, have also moved to clarify that DAB decisions are enforceable on a provisional basis even if an NOD has been issued, supporting the Court of Appeal's suggested methodology.

VI. Understanding "Exceeding the Mandate" as a Ground for Annulment

The ground for annulment under UNCITRAL Model Law Article 34(2)(a)(iii) (and its equivalents in national laws like Singapore's IAA) – that the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission – encompasses several scenarios:

  • Ultra Petita (Beyond the Submission): The tribunal decides matters that were not submitted to it by the parties in their pleadings or the Terms of Reference (if applicable). It essentially gives the parties something they didn't ask for, or rules on an entirely different dispute.
  • Infra Petita (Less than Submitted): The tribunal fails to decide on all the issues or claims that were properly submitted to it by the parties and were essential for the resolution of their dispute. This can leave parts of the dispute unresolved.
  • Acting Contrary to the Agreed Mission: As in CRW v. PGN, if the tribunal fundamentally misunderstands or misapplies the agreed procedural framework (like the specific FIDIC provisions for post-NOD arbitration) and consequently structures its award and proceedings in a way that deviates from its core mandate (e.g., to finally settle the referred dispute on its merits), this can also be seen as exceeding its powers or failing to exercise them properly.

Most arbitration laws, and judicial interpretations thereof, require that such an excess of mandate (or failure to exercise it) must have caused actual prejudice to the party seeking annulment. A minor or technical deviation without any real impact on the party's rights or the outcome is unlikely to lead to annulment. In CRW, the prejudice to PGN was clear: it was ordered to pay a large sum without the merits review it was entitled to in that proceeding, and was improperly told to start a new arbitration.

VII. Implications for Parties in FIDIC and Other Multi-Tiered Arbitrations

The CRW Joint Operation v. PGN decision provides critical lessons for parties involved in construction projects under FIDIC forms or other contracts with multi-tiered dispute resolution clauses:

  1. Clarity in the Request for Arbitration: When commencing arbitration after a DAB (or similar intermediary) decision and an NOD, parties must be very clear about the scope of relief they are seeking from the arbitral tribunal. If seeking prompt payment of the DAB amount and a final determination on the merits, this should be explicitly requested.
  2. The Tribunal's Mandate and Terms of Reference: In arbitrations where Terms of Reference are used (like ICC arbitration), ensure that the ToR accurately captures all issues to be decided by the tribunal. This includes any request for interim or partial awards to enforce DAB decisions pending a final merits review.
  3. Understanding the Contractual Dispute Resolution Mechanism: Parties must have a thorough understanding of how their specific multi-tiered dispute resolution clause (e.g., FIDIC Clauses 20.4, 20.5, 20.6, 20.7) is intended to operate. Attempting to use one part of the mechanism (e.g., seeking final enforcement of a non-final DAB decision) in a way that is inconsistent with the overall scheme can lead to jurisdictional challenges and award annulment.
  4. Adherence to Natural Justice: Arbitral tribunals must ensure that parties are given clear notice of all issues that will be dispositively decided at any given stage of the proceedings and a full and fair opportunity to present their case on those issues. Issuing a final determination on matters that parties reasonably believed were only being addressed on a preliminary or interim basis constitutes a breach of natural justice.
  5. Strategic Use of Interim/Partial Awards: The CRW case highlights that the appropriate way to seek prompt financial relief based on a "binding but not final" DAB decision (post-NOD) is often through an application for an interim or partial award for payment, with the understanding that the same tribunal will then proceed to the full merits review.

Conclusion

The Singapore Court of Appeal's decision in CRW Joint Operation v. PGN serves as a vital reminder of the limits of an arbitral tribunal's authority. Tribunals must meticulously adhere to the mandate conferred upon them by the parties' arbitration agreement, the applicable institutional rules, and any agreed Terms of Reference. In the specific context of FIDIC 1999 Red Book contracts, where a DAB decision is followed by a Notice of Dissatisfaction, an arbitral tribunal convened under Clause 20.6 generally has a mandate to conduct a full merits review to "finally settle" the dispute.

While such a tribunal can, and often should, give effect to the binding (though not yet final) nature of the DAB decision by ordering prompt payment through an interim or partial award, it cannot issue a final award ordering such payment while simultaneously denying a merits review within that same proceeding and directing the dissatisfied party to initiate an entirely new arbitration for that purpose. Such an approach constitutes both an excess of mandate (by improperly structuring the final relief and effectively deciding a different question than that posed by a Clause 20.6 referral) and a failure to decide the core substantive dispute submitted to it. Furthermore, if this is done without giving parties a full opportunity to be heard on all aspects being finally determined, it can also amount to a prejudicial breach of natural justice. The CRW case thus underscores the importance of both tribunals and parties carefully navigating the procedural intricacies of multi-tiered dispute resolution clauses to ensure the resulting awards are robust and unassailable.