In turn, each of the defendants counterclaimed (inter alia) damages for the plaintiff’s repudiatory breach of the unperformed contracts, representing the increased market value (over and above the agreed purchase price) of the goods due to be delivered under the contracts which the plaintiff had unilaterally terminated.

The plaintiff was successful in its principal claim in each arbitration, although the arbitrator referenced in his award, but did not make any award of damages in relation to, the plaintiff’s claims for consequential losses. The defendants were, however, also successful in being awarded their counterclaims arising out of the plaintiff’s alleged repudiatory breaches and unlawful termination of the unperformed contracts. As such, the damages awarded in favour of the plaintiff, when set off against sums successfully counterclaimed by the defendants, were almost entirely extinguished in one arbitration, and in the other, reduced significantly.

The plaintiff applied to the Singapore courts, seeking the setting aside of the arbitral awards, for reason of:

(a) breach of natural justice, pursuant to section 24(b) of Singapore’s International Arbitration Act (Cap 143A) (IAA), in that the arbitrator had referenced, but ultimately failed to consider, the plaintiff’s claims for consequential losses; and

(b) breach of Singapore public policy, pursuant to article 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law),¹ in that the arbitrator, in permitting the defendants to advance counterclaims and to recover losses for reason of the plaintiff’s termination of the unperformed contracts, was wrong at law, the consequence of which “is so manifestly unjust that it shocks the conscience of the court”.

The Originating Summonses for these claims were issued by the plaintiff in the Singapore High Court, and were in February 2020 transferred to the Singapore International Commercial Court (SICC). The SICC is a division of the Singapore High Court, and part of the Supreme Court of Singapore. The matter was determined by Justice Simon Thorley QC, International Judge of the SICC.

Judgment

The SICC dismissed the plaintiff’s applications to set the arbitral awards aside. In reaching its determination, the following issues were considered by Thorley IJ:

Arbitration agreements

The arbitration agreements between the parties contained an express distinction between:

(a) the seat; and

(b) the law for the conduct of the arbitration,

by referencing both Singapore and the Indian Act, respectively. This bifurcation of the lex arbitri and the law applicable to the procedure of an arbitration is unusual, and had the potential to cause significant complexity, with potentially competing arguments as to how these laws may be applied consistently and harmoniously.

However, in this instance, the issue was found to be irrelevant to the plaintiff’s application. The parties had not, during the course of the arbitration, invited the arbitrator to apply a different procedural law than Indian law, which was applied. Nor had the parties addressed the SICC on the issue, and neither party had disputed that the Singapore courts were the correct ones for determining the issue of whether the arbitral awards should be set aside. Further, the SICC determined that in this instance, a decision either way on the question would not affect the outcome.

Breach of natural justice

Section 24(b) of the IAA provides the court with discretion to set aside an arbitral award 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 SICC considered this discretion in light of the facts of the present cases, and in light of existing Singapore authority on the factors relevant to when such discretion may or should be exercised.²

It was argued by the plaintiff that the arbitrator’s failure to address its claim for consequential loss amounted to a breach of natural justice. It was not clear, from the evidence presented to the SICC, whether the arbitrator had in fact made an oversight in not addressing the claim, or whether, as the defendants contended, the issue was raised and immediately dismissed by the arbitrator during the oral hearing (or otherwise). Thorley IJ proceeded to consider the issue in light of the most favourable position available to the plaintiff (i.e., that failure to address the claims was an oversight by the arbitrator).

Thorley IJ determined that, on application of such a favourable reading, the established grounds for what constitutes a breach of natural justice³ would in fact be met. As the test would be met, it would then be a matter for the court to determine whether it should not exercise its discretion to set the awards aside.

In considering that issue, reference was made to section 33(4) of the Indian Act, which provided that:

“Unless otherwise agreed by the parties, a party with notice to the other party, may request, within thirty days from the receipt of the arbitral award, the arbitral tribunal to make an additional arbitral award as to claims presented in the arbitral proceedings but omitted from the arbitral award.”

In this instance, the plaintiff had failed to make any application to the arbitrator for an additional award, to address the consequential loss claims which the plaintiff alleged the arbitrator had overlooked. Further, the plaintiff offered no explanation for why it had not sought such an additional award.

While a failure to make such a request or application would not in itself be fatal to the plaintiff’s ability to have the award set aside,⁴ the SICC held that such failure would result in it weighing heavily in favour of applying the principle of minimal curial intervention in arbitration proceedings, as established by the Model Law and the IAA,⁵ over and above avoiding a breach of natural justice. As such, the SICC exercised its discretion not to set aside the awards, or to remit them back to the tribunal. Taking account of the small proportion of the total value of the claims which the plaintiff’s alleged damages for consequential loss comprised, Thorley IJ concluded on this point:

“In these circumstances it would be wholly disproportionate to remit the matter back to the Arbitrator, much less set aside the awards. Where the breach of natural justice is in relation to such a small percentage of the claim, it is even more incumbent on the party seeking relief from the court to adopt the quicker and cheaper course of requesting the tribunal to issue an additional award. This aspect of the plaintiff’s application therefore fails.”⁶

Singapore public policy

In relation to the plaintiff’s application for the awards to be set aside on grounds of them being in breach of Singapore public policy, it was argued by the plaintiff that the arbitrator erred in law in allowing the defendants’ counterclaims to proceed. The plaintiff argued that permitting the counterclaims to proceed was without regard to the plaintiff’s arguments that it was entitled to cancel the unperformed contracts for reason of acceptance of the defendants’ anticipatory repudiatory breach of the same. The consequence of this (in almost extinguishing one award in the plaintiff’s favour, and in substantially reducing the other) was argued to result in an outcome which “is so manifestly unjust that it shocks the conscience of the Court”.⁷

These arguments were promptly dismissed by Thorley IJ, who noted that the arbitrator had found that each of the contracts in question (those which had been performed by the plaintiff, and those which remained unperformed and were cancelled) were separate. Thorley IJ stated:

“Since [the arbitrator] had found that the contracts were separate contracts, it was a necessary conclusion that the failure by one party to perform one of the contracts (ie, by failing to pay the sum due under that contract) did not amount to anticipatory breach of each of the other contracts thereby entitling the other party to rescind them. In any event, this is irrelevant. Even if the Arbitrator erred in law, this is not a ground for setting aside the awards. An essential aspect of the principle of minimal curial intervention is that ‘there is no right of recourse to the courts where an arbitrator has simply made an error of law and/or fact’…”⁸

As such, the SICC was left to consider solely the issue of whether the financial outcome of the arbitral awards was so disproportionately skewed in favour of the defendants that it “shocks the conscience” of the court. The SICC noted that arbitral awards would only be set aside for reason of conflict with the public policy of Singapore in exceptional cases, applying the principles set out by the Court of Appeal in PT Asuransi Jasa Indonesia (Persero) v. Dexia Bank SA [2007] 1 SLR(R) 597.⁹ Thorley IJ continued by stating that intervention of the court should be reserved only for cases where an award was in conflict with public decency, behaviour, morality and/or justice, which would be an unusual occurence in relation to commercial disputes. In conclusion, Thorley IJ stated:

“I regret that it does not shock my conscience. … In short, the plaintiff made certain commercial decisions which turned out to be disadvantageous. This is part and parcel of normal trading. There is nothing which ‘shocks the conscience’ about this. The outcome in the CEE Action [in which the plaintiff’s award was almost entirely extinguished by the defendant’s successful counterclaim] is, I accept, stark but this cannot turn a bad commercial deal into one that shocks the conscience. This ground for setting aside the award therefore also fails in both actions.”¹⁰

As such, the Originating Summonses in relation to the cases were dismissed.

Key takeaways

1. While the issue was not ultimately of a critical nature in this instance, this case should serve as a potent reminder that a great deal of care must be taken when drafting highly bespoke arbitration agreements which seek to draw a distinction between:

(a) the law of the seat of the arbitration; and

(b) either the substantive law of the arbitration, or the law that is to govern the way in which the arbitration is to be conducted.

This is a relatively unusual occurrence, and while it remains unclear as to whether this is in fact what the parties had intended here, this is a complex thing to achieve successfully. Careful consideration must be given to the potential inadvertent and unforeseen consequences which may arise therefrom.

2. Consistent with prior authority,¹¹ the Singapore courts will apply a high threshold before giving effect to any argument of breach of natural justice. In circumstances where the relevant procedural law offers an opportunity for potential defects to be cured by the arbitral tribunal, parties would be well advised to avail themselves of such opportunity before attempting to have awards set aside without having first done so. A failure to do so may not be fatal, but will likely present the court with a clear opportunity to maintain the principle of minimal judical curial intervention in arbitral autonomy.

3. A potential error of law or fact made by an arbitrator in rendering an award (which, in this case, was not evidenced) is not in itself a valid reason for the court to exercise its discretion to set aside an arbitral award on grounds of a conflict with Singapore public policy. Appeals against arbitral awards on points of law are not presently permitted in Singapore under the IAA.

4. In order to successfully invoke a public policy argument when seeking to set aside an arbitral award, a significantly higher threshold than merely evidencing the potentially stark consequences of poor commercial decisions would need to be met. Prior to taking any action of last resort, such as terminating a contract, legal rights should be carefully considered. This case clearly demonstrates the potential unintended consequences of failing to consider such rights prior to acting.

5. The Singapore courts will continue, wherever possible, to support the autonomy of arbitration, and to uphold the awards of the parties’ mutually agreed forum for dispute resolution. While in the recent case of ST Group Co Ltd and others v. Sanum Investments Limited and another appeal [2019] SGCA 65, the Singapore Court of Appeal refused to grant an application for leave to enforce an international arbitration award (on the grounds that the seat of the arbitration was not in accordance with the choice of the parties), that case should continue to be regarded solely as one which was determined adversely to arbitration based on its very particular facts, rather than as the commencement of any trend towards greater curial intervention to the detriment of the arbitral process.

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Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.

1. The Model Law is given the force of law in Singapore pursuant to section 3 of the IAA.AKN and another v. ALC and others and other appeals [2015] 3 SLR 488
2. (AKN); Soh Beng Tee & Co Pte Ltd v. Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (Soh Beng Tee); John Holland Pty Ltd v. Toyo Engineering Corp (Japan) [2001] 1 SLR(R) 443.
3. Principally, the four criteria set out in Soh Beng Tee.
4. As was held in BLC and others v. BLB and another [2014] 4 SLR 79 (BLC), relating to article 33(3) of the Model Law, a similar provision to section 33(4) of the Indian Act.
5. Referred to in AKN as “a mainstay of the Model Law and the IAA”, citing BLC.
6. At [64].
7. Paragraph 48 of the plaintiff’s written submissions, cited by Thorley IJ at [74].
8. At [75], citing Andrew Phang Boon Leong JA in BLC.
9. “[I]t should only operate in instances where the upholding of an arbitral award would ‘shock the conscience’…or is ‘clearly injurious to the public good or…wholly offensive to the ordinary reasonable and fully informed member of the public’…or where it violates the forum’s most basic notion of morality and justice” at [59].
10. At [76]-[77].
11. See also our commentary on the recent Singapore High Court judgment in BSM v. BSN and another matter [2019] SGHC 185.

Client Alert 2020-333