What happened between the parties?
The parties entered into an equipment and services contract, and a services agreement, relating to the construction of a steel plant. The plaintiffs (P) also extended loans totalling €15 million to the defendant (D). The steel plant failed to reach production targets. The parties blamed each other for the delays that led to this failure, and each held the other in repudiatory breach.
The agreements provided for disputes to be resolved in Singapore under the Rules of Arbitration of the International Chamber of Commerce.
What did the ICC tribunal decide and why?
The parties commenced arbitrations against each other, which were consolidated by consent.
P sought declaratory relief, damages for repudiatory breach, and repayment of the loan with interest. D argued that P made material misrepresentations in the equipment and services contract. D sought rescission of both agreements, repayment of all sums paid by D to P, and damages for misrepresentation or, in the alternative, damages for breach of contract.
The tribunal issued an award in favour of D, upholding the misrepresentation claim in its entirety and rescinded both agreements. It ordered the following relief:
- D was entitled to restitution (Repayment Order).
- D was to transfer title to the plant to P in return for the payment above (Transfer Order).
- D was entitled to reliance damages (Damages Order)
The application to set aside the award before the Singapore High Court
P applied to the Singapore High Court (Court) to set aside all three orders. It applied to set aside the Transfer Order on four main grounds:
- The arbitral procedure was not in accordance with the parties’ agreement or Article 34(2)(a)(iv) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law).
- The award decided matters beyond the scope of the submission to arbitration (Article 34(2)(a)(iii) of the Model Law).
- There was a breach of natural justice in connection with the making of the award under section 24(b) of the International Arbitration Act (Cap. 143A).
- The plaintiffs were unable to present their case on essential issues in the arbitration (Article 34(2)(a)(ii) of the Model Law).
P also contended that the tribunal had breached natural justice in making the Repayment Order and Damages Order in violation of the fair hearing rule, and without evidence of the value, or diminution of value, of the plant and reliance loss.
The High Court dismissed P’s challenge to all three orders.
Ground 1: Breach of arbitration agreement or Model Law
P’s application to set aside the Transfer Order on this ground failed on two preliminary points:
- P’s application was misconceived. Article 34(2)(a)(iv) of the Model Law does not apply to the substance of the award. Rather, it goes to whether the tribunal had failed to adhere to an arbitral procedure in an arbitration agreement or as per the Model Law, and whether failure to do so causally related to the tribunal’s decision.
- As P had not raised the issue which it now relied on as its ground for challenge (under Article 34(2)(a)(iv)) in the arbitration itself, P was prevented from relying on it to challenge the Transfer Order.
The Court’s finding on the preliminary points sufficed to dismiss the challenge under Article 34(2)(a)(iv); however the Court also commented that:
- An “unenforceable” and “unworkable” award was not in and of itself liable to be set aside under Article 34(2)(a)(iv). In any event, the award in question was workable.
- Reliance on unenforceability required P to positively establish a ground under Article 36, not Article 34.
Ground 2: Beyond the scope of submission to arbitration
P argued that a transfer of the plant’s title was never in the list of issues submitted to arbitration; D had only ever sought monetary compensation. P therefore argued that when the tribunal ordered D to make this counter-restitution in specie (the transfer of an asset in its current form, as opposed to its cash equivalent), the tribunal had decided a matter outside the scope of the submission to arbitration.
The Court disagreed and held as follows:
Just because the tribunal (i) excluded reference to counter-restitution in specie in the Terms of Reference (TOR), and (ii) did not exercise its power to authorise either party to seek an order on this, did not mean such relief was outside the scope of the parties’ submission.
In any event, the TOR was wide enough to allow counter-restitution in specie falling within the scope of arbitration. In this context, at paragraph 92 of its decision, the Court cited with approval paragraph 1.359 of Timothy Cooke’s International Arbitration in Singapore, Legislation and Materials (Sweet & Maxwell, 2018) for the proposition that an issue which surfaces in the course of an arbitration and which is known to all the parties is within the scope of the submission to arbitration even if it is not part of any list of issues or pleading. As P was aware at all times that counter-restitution in specie was a live issue, it should have raised a complaint to the tribunal. Failure to do so amounted to a waiver, precluding P from relying on it later.
Grounds 3 and 4: Breach of natural justice
P invoked the ground of breach of natural justice to set aside all three orders.
Fair hearing rule
On the Transfer Order, P argued it was unable to present its case on potential counter-restitution in specie as a consequence of rescission as counter-restitution was never a live issue in the arbitration. P relied on the same reasons to argue that it was unable to present its case on the value, and diminution of value, of the plant, and thus the Repayment Order was tainted by the Transfer Order.
The Court rejected both arguments. It held that counter-restitution in specie was a live issue from the moment D sought rescission in its notice of arbitration. P could have presented its case on the issue as one of the natural legal consequences of rescission but chose not to do so.
Regarding the Damages Order, P submitted it was unable to present its case on the quantum of D’s reliance loss because the tribunal had not invited P to take certain steps. The Court dismissed the complaint, noting that it was P’s responsibility to decide how it wished to meet D’s claim for reliance loss.
No evidence rule
P submitted further that the Repayment Order and Damages Order should be set aside because the tribunal made those orders without any evidence of the asset being diminished in value.
This ground was novel and Singapore law does not recognise that it is a breach of natural justice to make a decision on no evidence at all. P sought to convince the Court to accept the no evidence rule as a free-standing rule of natural justice in Singapore.
The Court refused because the ground added nothing to the existing grounds save for an invitation for a court to reconsider the merits of a tribunal’s findings of fact as if the setting-aside application were an appeal. This, the Court noted, was impermissible under the Model Law’s setting-aside regime.
The Court also held that, even if the rule was accepted as a free-standing third rule of natural justice, there was no basis to set aside the Repayment Order. The rule could not be applied to situations where no evidence was ever put to the tribunal on a material issue of fact because the party bearing the burden failed to adduce such evidence. P had the burden of establishing the diminution in value of the plant but failed to do so.
The tribunal awarded D a flat 25 per cent in respect of its damages claim. P took issue that the tribunal had no evidence to justify awarding a flat 25 per cent of reliance loss. The Court dismissed this on the basis that the tribunal is entitled to take a middle path where parties advanced all-or-nothing positions, subject to the final outcome being in line with the parties’ pleadings.
Comment
Though the principles of setting aside awards are well established in Singapore, the practical application of the principles to unusual situations continues to give rise to reported decisions. This decision summarises some key principles on commonly cited grounds for setting aside applications, and reaffirms the policy of minimal curial intervention in Singapore.
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