Background

Article 34(2) of the UNCITRAL Model Law , which has the force of law in Singapore, sets out the grounds under which an arbitral award may be set aside:

"(2) An arbitral award may be set aside by the court specified in article 6 only if:

(a) the party making the application furnishes proof that:

…

(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) 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 to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law".

Facts

The plaintiff, GD Midea Air Conditioning Equipment Co Ltd (Midea) and the defendant, Tornado Consumer Goods Ltd (Tornado) entered into two agreements in August 2011, for the supply of air-conditioners and other electrical products from Midea to Tornado. A dispute arose between the parties and arbitration proceedings were commenced in relation to an International Exclusive Distribution Agreement on Midea Brand Home Appliances (MBA), and its subsequent termination by Midea in August 2013.

An arbitral tribunal rendered an award on 14 November 2016, finding largely in favour of Tornado. Midea thereafter applied to the Singapore High Court to set aside the award in part, while Tornado on the other hand, obtained leave in a separate application to enforce the award.

The Singapore High Court had to consider whether the tribunal’s finding that Midea had breached clause 4.2 of the MBA should be set aside. To do so, the court considered whether the tribunal:

• Had acted in excess of its jurisdiction (Article 34(2)(a)(iii)).
• Had acted in breach of the agreed procedure (Article 34(2)(a)(iv)).
• Had acted in breach of Midea’s right to present its case and/or in breach of the rules of natural justice (Article 34(2)(a)(ii)).

The court consequently also had to consider whether:

• The rest of the tribunal’s findings, which were tainted by or followed from the tribunal’s finding on clause 4.2, should be set aside.
• Whether the enforcement order should be set aside to the extent the above findings are set aside.

Decision

The Singapore High Court set aside the award in part. The enforcement order was consequently also set aside to the same extent that the award had been set aside.

Article 34(2)(a)(iii): whether the tribunal acted in excess of its jurisdiction

The court reiterated the principles set out in earlier decisions, that an assessment of whether an arbitral award ought to be set aside under Article 34(2)(a)(iii) involves a two-stage inquiry:

• What matters were within the scope of submission to the arbitral tribunal.
• Whether the arbitral award involved such matters, or whether it involved “a new difference … outside the scope of submission to arbitration and accordingly … irrelevant to the issues requiring determination”.

In other words, the arbitral tribunal has no jurisdiction to decide any issue not referred to it for determination. 

In this instance, it was not disputed that the Notice of Arbitration, pleadings and submissions in the arbitration did not allege any breach of clause 4.2. Neither was there any reference to any breach of clause 4.2 in the parties ‘Agreed List of Issues’ (ALOI) submitted to the tribunal. 

In addition, the tribunal’s findings on clause 4.2 were unrelated to and not reasonably required for the determination of two of the issues identified in the parties’ ALOI.

The court was of the view that the tribunal had exceeded its jurisdiction by addressing matters beyond the scope of submission to arbitration. Consequently, there was no further requirement for Midea to show “real or actual prejudice”. 

Article 34(2)(a)(iv): whether the tribunal acted in breach of the agreed procedure

The court applied the principles in AMZ v AXX [2016] 1 SLR 549, that a party seeking to set aside an award under Article 34(2)(a)(iv) must show that:

• There was an agreement between the parties on a particular arbitral procedure.
• The tribunal failed to adhere to that agreed procedure.
• The failure was causally related to the tribunal’s decision, in the sense that the decision could reasonably have been different if the tribunal had adhered to the parties’ agreement on procedure.
• The party mounting the challenge is not barred from relying on this ground by virtue of its failure to raise an objection during the proceedings before the tribunal. 

Midea’s argument was that the tribunal breached the agreed procedure when it departed from the ALOI by making its finding on clause 4.2. The court accepted Midea’s argument, finding that it was clearly envisaged that the dispute would be decided within the framework of the ALOI. As such, it was of the view that the first three requirements were met. As for the fourth requirement, this was irrelevant as Midea had no opportunity to object during the proceedings since the issue of a breach of clause 4.2 did not arise at all then.

Article 34(2)(a)(ii): whether the Tribunal acted in breach of the rules of natural justice

Midea’s case was that the tribunal’s finding on clause 4.2 breached the fair hearing rule because Midea was denied a full opportunity to present its case; this was accepted by the court. The issue of a breach of clause 4.2 did not arise in the arbitration and the tribunal made its finding on clause 4.2 without giving notice to the parties. In the court’s view, the tribunal’s breach was clearly connected to the making of the award, as its findings on clause 4.2 formed the basis on which the impugned findings in the award were made.

The court reiterated that an arbitral award will not be set aside on the ground of breach of natural justice unless it can be shown that some actual or real prejudice will be caused by the breach; the test is whether the tribunal could reasonably have arrived at a different result if not for the tribunal’s breach.

In this instance, the court was of the view that Midea had suffered real or actual prejudice as it could not be said that the tribunal could not reasonably have arrived at a different result.

Consequent orders

The court accepted Midea’s arguments that other findings as identified by Midea (except one) were linked to and flowed from the tribunal’s finding on clause 4.2. It also agreed with Midea that it was not appropriate to remit the tribunal’s finding on clause 4.2 and the other tainted findings to the tribunal, since the issue of whether there was a breach of clause 4.2 was never an issue before the tribunal in the first place. Accordingly, the court set aside these findings. The finding in the award on interest was also set aside to the extent the interest related to any of the findings that were set aside.

The court also set aside the enforcement order to the same extent that the award had been set aside.

Comment

This decision is a rare instance where the Singapore courts have set aside an award, albeit in part. As is clear from the decision, where the grounds for setting aside an award are met, the courts will not hesitate to make the appropriate orders.

Case

GD Midea Air Conditioning Equipment Co Ltd v Tornado Consumer Goods Ltd [2017] SGHC 193.