Case Law Developments
By YEO BOON TAT - Partner, Pinsent Masons MPillay LLP and TAN HAI SONG - Associate, MPillay
In this issue, we discuss two decisions, as follows:
- BCY V BCZ [2016] SGHC 249
- Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza Spa [2016] 5 SLR 455
These decisions highlight the pragmatic and commercially sensible approach taken by the Singapore Courts when asked to hear matters relating to on-going international arbitration proceedings.
BCY V BCZ [2016] SGHC 249
What law ought to govern an arbitration agreement, particularly where the law of the seat differs from the governing law of the main contract?
In a very well-reasoned decision, the High Court held that there is a presumption that the proper law of an arbitration agreement is the same as that of the main contract, preferring the approach of Moore-Bick LJ in Sulamerica CIA Nacional de Seguros SA and others v Enesa Engenharia SA and others [2012] EWCA Civ 638 (“Sulamerica”) over its previous approach in FirstLink Investments Corp Ltd v GT Payment Ltd and other [2014] SGHCR 12 (“First Link”).
Background Facts
This matter concerned an International Chamber of Commerce (“ICC”) arbitration commenced by the Defendant against the Plaintiff ("Arbitration"). The Plaintiff is a foreign bank and was at all material times the owner of certain shares in a company (“Shares”). The Defendant was a special-purpose vehicle incorporated to be the contracting party to a share purchase agreement (“SPA”) to be entered into with the Plaintiff for the sale of the Shares. The director and sole shareholder of the Defendant is one Mr. Z, who is also the director and sole shareholder of another foreign related company, Y. Y and the Defendant were the claimants in the arbitration.
The dispute arose when the Plaintiff backed out of the proposed sale of the Shares and refused to execute the SPA. Throughout the course of negotiations, Mr. Z and his lawyers did not expressly distinguish whether they were negotiating on behalf of Y or the Defendant. Prior to the breakdown of negotiations, seven drafts of the SPA, which incorporated an ICC arbitration clause, were circulated and negotiated. As the changes between each draft of the SPA and the circumstances surrounding each draft had a significant bearing on the Arbitrator’s – and eventually, the High Court’s - decision, it is worth describing the drafts briefly below:
- The first draft was sent by Mr. Z to the Plaintiff on 17 June 2013. Article 9.13 was the dispute resolution clause. Article 9.13.1 provided for New York law as the governing law of the agreement. This choice remained the same in all seven drafts of the SPA. Article 9.13.2 provided for any disputes arising out of or in connection with the agreement to be resolved in the New York Courts.
- On 25 June 2013, the second draft was sent by the Defendant to the Plaintiff and another bank which was intended to become a co-purchaser of the Shares (“W”). Notably, Article 9.13.2 was replaced with an arbitration clause which provided that any disputes arising out of or in connection with the SPA shall be settled under “the Rules of Arbitration of the [ICC] by one or more arbitrators appointed in accordance with the Said Rules”, and that the arbitration shall take place in Singapore.
- The third draft was circulated by the Defendant to the Plaintiff and W on 26 June 2013. It was in this draft that W was added as a co-purchaser. Article 9.13 remained unchanged.
- The fourth draft was circulated by the Plaintiff to the Defendant and W on 12 July 2013. Two amendments were made to Article 9.13.2. First, it now stated that any dispute was to be referred to only one arbitrator. Second, it specified Singapore as the seat of arbitration.
- The fifth and sixth drafts were circulated on 17 and 18 July 2013 respectively, with no major changes to the dispute resolution clause i.e. Article 9.13. Along with the sixth draft on 18 July 2013, the Plaintiff’s investment specialist indicated in the cover email that the Plaintiff was “ready to sign” the SPA. W however replied saying that its legal counsel was still finalizing the draft.
- The seventh draft was circulated by W to the Plaintiff and Defendant on 25 July 2013. The draft however contained what were purportedly significant changes to the SPA, including amendments to key terms.
Thereafter, the Plaintiff informed Mr. Z that it had decided not to proceed with the sale of the Shares due to “recent changes in the business climate”. The Defendant and Y then commenced arbitration pursuant to ICC Rules, seeking the following relief: damages for breach of the SPA; a claim for promissory estoppel based on the alleged promise of the Plaintiff to sell the Shares; and a claim for unjust enrichment based on actions taken in reliance on the promise. A sole arbitrator ("Arbitrator") was then appointed pursuant to the ICC Rules.
The Plaintiff raised a preliminary objection to the Arbitrator’s jurisdiction on the basis that no arbitration agreement had been concluded between the Plaintiff and the Defendant and/or Y.
The Arbitration
In the Arbitration, the Defendant took the position that the arbitration agreement was concluded prior to the purported conclusion of the SPA itself, either on 25 June 2013 (date of 2nd draft SPA), or at the very latest, by 18 July 2013 (date of the 6th draft SPA), on the basis of the Plaintiff's words and conduct which indicated that it assented to be bound by the arbitration clause.
The Arbitrator found that the proper law of the arbitration agreement was New York law. He applied Sulamerica, which held that if parties did not identify an express choice of law for the arbitration agreement, then a rebuttable presumption would arise in that their implied choice of law was the governing law of the main contract. Since the governing law of the main contract was New York law, the proper law of the arbitration agreement would likewise be the same given that there were no factors displacing that rebuttable presumption.
Applying New York law, the Arbitrator found that on the basis of the words and conduct of the parties, the arbitration agreement had come into existence by 18 July 2013 when the Plaintiff indicated that it was "ready to sign" the SPA.
The Singapore Proceedings
The Plaintiff, dissatisfied with the Arbitrator's decision, applied to the Singapore High Court for a declaration that the Arbitrator had no jurisdiction to hear and determine any claim advanced by the Defendant, or in the alternative, that the Arbitrator only had jurisdiction to hear the claim for breach of the unexecuted SPA (but not the promissory estoppel or unjust enrichment claims).
Before the High Court, the Plaintiff submitted that the governing law of the arbitration agreement was Singapore law, while the Defendant took the position that New York law ought to govern the arbitration agreement. The Defendant also took the position that a valid and binding arbitration agreement was formed on 18 July 2013, as held by the Arbitrator.
The Court found that the issue of the governing law of the arbitration agreement was in fact a red herring as the answer would have "negligible, if any, influence on the primary question of whether an arbitration agreement was formed" (at [39]), given that both parties acknowledged there were no material differences between New York law and Singapore law on the formation of an arbitration agreement. Nevertheless, it proceeded to give a very helpful exposition on the seemingly divergent cases and authorities on this issue.
The Court was of the view that the starting point should be that the governing law of an arbitration agreement is to be determined in accordance with a three-step test, as follows:
- First, where parties have expressly chosen their choice of law, such law would govern the arbitration agreement;
- Second, absent such express choice of law, the implied choice of the parties as gleaned from their intentions at the time of contract would then govern the agreement;
- Finally, in a case where both express and implied choices of law are nowhere to be found, then the system of law with which the arbitration agreement has the closest and most real connection would apply.
The test set out above is one that is generally applicable to conflict of law issues relating to contract law, and is largely uncontroversial. What remains to be determined, and which is the subject of controversy, though, is what the "implied choice of law" ought to be in the context of arbitration agreements. In this regard, there were two main contrasting views, represented primarily by the approaches taken in Sulamerica and FirstLink respectively.
Sulamerica vs. FirstLink
The High Court first considered Sulamerica, in which Moore-Bick LJ drew a distinction between two scenarios:
- The first scenario is where there was a "free-standing agreement to arbitrate". Such scenarios would arise when, for instance, parties execute a separate arbitration agreement providing for the arbitration of disputes relating to several contracts, or when parties conclude an arbitration agreement after a dispute has arisen. In such a scenario, it is unlikely that there would be sufficient basis for finding an implied choice of law (by reference to the governing law of the substantive contract) and the law of the seat would most likely be the governing law of the arbitration agreement applying the third limb of the test.
- The second scenario is where the arbitration agreement formed part of a substantive contract. The express choice of proper law governing the substantive contract would be a "strong indication of the parties' intentions in relation to the agreement to arbitration", with the result that the implied choice of law for the arbitration agreement was likely to be the same as the expressly chosen law of the substantive contract. This is however merely a presumption, which can be displaced by the terms of the arbitration agreement itself or the consequences of choosing the proper law of the substantive contract to govern the arbitration agreement.
The High Court then turned its attention to FirstLink. In FirstLink, the Assistant Registrar disagreed with Moore-Bick LJ's view in Sulamerica that there should be a rebuttable presumption that the express substantive law of the contract would be taken as the parties' implied choice of proper law governing the arbitration agreement. Instead, the AR took the view that, "it cannot always be assumed that commercial parties want the same system of law to govern their relationship of performing the substantive obligations under the contract", and accordingly, in a situation of "direct competition between the chosen substantive law and the law of the chosen seat of arbitration", the default position is that the latter should be the governing law of the arbitration agreement (see [48]).
The High Court in BCY preferred the approach adopted in Sulamerica, and expressed the view that the presumption adopted there - that the choice of law for the arbitration agreement should be the same as the expressly chosen law of the substantive contract – "is supported by the weight of authority" and "preferable as a matter of principle" (at [49]). The High Court reviewed the cases following Sulamerica and FirstLink, and highlighted that more cases appear to favour the Sulamerica approach. The Court also expressed the view that where the arbitration agreement is a clause forming part of the main contract, "it is reasonable to assume that the contracting parties intend their entire relationship to be governed by the same system of law" (see [59]). For completeness, the Court also addressed the doctrine of separability, which is frequently raised to support the FirstLink approach. The Court expressed the view that the doctrine's narrow - albeit important – purpose is to ensure that any challenge to the validity of the main contract does not, in itself, affect the validity of an arbitration agreement. The doctrine was never meant to "insulate the arbitration agreement from the substantive contract for all purposes" (see [61]).
The High Court's decision
Interestingly, whilst the High Court agreed with the Arbitrator and the Defendant and found that the arbitration agreement was clearly intended to be part of the SPA and therefore New York law applied (following Sulamerica), it went on to grant the orders sought by the Plaintiff on the basis that there was no valid and binding arbitration agreement concluded between the parties.
The Court found that the Defendant did not satisfy the evidential burden of proving on a balance of probabilities that parties intended and concluded a binding arbitration agreement on 18 July 2013 prior to the conclusion of the SPA. There was simply "no objective evidence of the parties' mutual intention to be bound by the arbitration clause" (see [91]).
RALS INTERNATIONAL PTE LTD V CASSA DI RISPARMIO DI PARMA E PIACENZA SPA [2016] 5 SLR 455
In this matter, the Singapore Court of Appeal was asked to consider the issue of whether an assignee of bills of exchange had an obligation to arbitrate disputes contained in the underlying contract, in the context of an application to stay court proceedings commenced in Singapore. Upholding the High Court's decision to dismiss the stay application, the Court of Appeal held that a negotiable instrument is not governed by an arbitration agreement in the contract pursuant to which the instrument was issued, unless the agreement has been expressly incorporated in that instrument. Accordingly, the assignee was not obliged to refer the dispute to arbitration and there was no basis to grant the stay.
Background Facts
The Appellant is a company incorporated in Singapore. The Appellant entered into a supply agreement with an Italian supplier, O ("Supply Agreement"), to buy certain equipment to process cashew nuts. The Supply Agreement provided for payment to be made partly in cash and partly by promissory notes issued to O ("Notes"). The Supply Agreement also contained a clause providing for parties to refer all disputes to arbitration.
The Notes were subsequently assigned to the Respondent at a discount to face value. The Appellant however dishonoured the Notes when the Respondent later presented the Notes for payment, after which the Respondent commenced proceedings in the Singapore High Court. In response, the Appellant applied for a stay of the Respondent's claim under section 6(1) read with section 6(5) of the International Arbitration Act ("IAA"), which provides that the Court must order a stay of proceedings where:
(i) the claimant in the proceedings is a party to an arbitration agreement either directly or because he is claiming “through or under” such party (the "Party Issue"); and
(ii) the subject matter of the proceedings (i.e. the Appellant's obligation to pay under the Notes) is the subject of the arbitration agreement (the "Subject Matter Issue").
Proceedings Below
The Appellant succeeded at first instance before an Assistant Registrar, who granted a stay of the Singapore proceedings on the following basis:
(i) as regards the Party Issue, there was at least an arguable case that the assignment of the credit under the Supply Agreement by O to the Respondent would render the Respondent a "direct" party to the arbitration agreement given its knowledge of the same. Alternatively, the Respondent was a party claiming "through or under" O as it was an assignee of O's credit under the Supply Agreement.
(ii) as regards the Subject Matter Issue, the Assistant Registrar held that it could be inferred that parties had intended that disputes over the Notes would, like any other disputes over the performance of the Supply Agreement, be subject to the arbitration agreement unless specifically excluded.
The Respondent's knowledge of the underlying Supply Agreement when it accepted the assignment therefore appeared to be the common thread through the Assistant Registrar's findings.
On appeal, however, the High Court reversed the Assistant Registrar's decision. The High Court agreed with the Assistant Registrar on the outcome of the Party Issue, albeit on a different basis. It held that in the context of a section 6 application, a party to an agreement had to be a party in the contractual sense (i.e. the knowledge of a party of the underlying agreement is not sufficient to make such party a "direct" party). However, it considered the Respondent to be claiming "through or under" O, as it had received (by virtue of the assignment) not only the right to receive the purchase price under the Supply Agreement, but also the burden to arbitrate any disputes.
That being said, the High Court decided the Subject Matter in favour of the Respondent, on the basis that the rights and obligations under the Supply Agreement were separate and independent from the statutory contract represented by the Notes. In other words, it took the view that the subject matter of the proceedings could be distinguished from the subject matter under the arbitration agreement. Accordingly, the Assistant Registrar's decision was reversed.
Appeal before the Court of Appeal
The Appellant's primary ground of appeal before the Court of Appeal related solely to the Subject Matter issue. It relied heavily on the decision of Larsen Oil and Gas Pte Ltd v Petropod Ltd [2011] 3 SLR 414 ("Larsen"), where it was held that arbitration clauses ought to be construed generously such that all claims as between the contracting parties would generally fall within their ambit. Accordingly, the Appellant posited that the inclusion of a widely-drafted arbitration clause in the Supply Agreement meant that O and the Appellant must have intended for the Notes, "which were an "inextricabl[e] part of the Supply Agreement" to fall within its scope" (at [21]).
In turn, the Respondent's arguments were two-fold.
First, it argued that as between O and the Appellant, a claim on the Notes did not fall within the scope of the arbitration agreement. Since it is clear that the Respondent - as assignee of the rights under the Supply Agreement - could not be in a worse position than O, a claim by the Respondent on the notes would likewise not fall within the scope of the arbitration agreement.
Second, the Respondent argued that even if the Notes did fall within the scope of the arbitration agreement as between O and the Claimant, the Respondent's status as an indorsee of the Notes rendered its claim outside the scope of the arbitration agreement.
The Court of Appeal found for the Respondent and dismissed the appeal, on the basis that the obligations under the Notes were separate and autonomous from those arising out of the Supply Agreement. While it agreed that the position in Singapore is that as established in Larson, there are limits to its application as in the present case. Namely, where there are compelling reasons, commercial or otherwise, that may displace any assumed intention of the parties that claims of a particular kind were to fall within the scope of an arbitration clause, the court should be slow to conduct the exercise of contractual construction from the starting point in Larson. Particularly, in respect of bills of exchange, the Court of Appeal was of the view that it is difficult to see as a matter of commercial common sense why any right-thinking merchant would choose to give up his right to choose his preferred mode of dispute resolution (see [45]).
The Court of Appeal left open the question of whether an assignee to a negotiable instrument is bound to arbitrate if and once it elects to exercise its assigned right to arbitrate. This theory operates on the premise that the assignee would be deemed to have submitted to arbitration in such a case, thereby giving its consent (albeit impliedly) to arbitrate its disputes. The Court of Appeal however also recognized that the theory may potentially conflict with the doctrine of privity by allowing non-parties to an arbitration agreement to avail themselves of the right to arbitration.
In this issue, we focus on two recent decisions, one by the English High Court and the other by the Singapore High Court.
Xstrata Coal Queensland Pty Ltd, Sumisho Coal Australia Pty Ltd, Itochu Coal Resources Australia Pty Ltd and ICRA OC Pty Ltd v Benxi Iron & Steel (Group) International Economic & Trading Co Ltd [2016] EWHC 2022
Introduction
In this case, the English High Court granted an application under Section 79 of the Arbitration Act 1996 to extend the time period within which a party could apply under Article 27 of the London Court of International Arbitration Rules, for the arbitral tribunal to correct its award.
Facts
Contract referred to a different party
The Respondent entered into a contract to purchase quantities of coking coal from the Claimants (the “Contract”). A dispute that arose under the contract was referred to arbitration in London, at the end of which the Respondent was to pay around US$28 million to the Claimants (the “Award”). Although the Claimants sought to enforce the arbitral award in the People’s Republic of China, the Chinese court refused to do so on the basis that the fourth Claimant, ICRA OC Pty Ltd (“ICRA OC”) was not a party to the Contract, including the agreement to arbitration.
Under the Contract, the seller was described to be the first Claimant, entering as agent for “the Oaky Creek Joint Venturers”, which comprised itself, the second and third Claimants, and an ICRA NCA Pty Ltd (“ICRA NCA”). However, the Contract also referred to an “Oaky Creek Joint Venture”, to which all four Claimants were party (ICRA NCA was not a party).
In making the Award, the tribunal treated ICRA OC, and not ICRA NCA, as:
(a) A party to the Contract, including the agreement to arbitration;
(b) One of the Oaky Creek Joint Venturers;
(c) A party to the claim before the tribunal; and
(d) A beneficiary of the arbitral award.
However, the tribunal did not explain how it dealt with the Contract’s reference to ICRA NCA, and not ICRA OC.
Claimants seek to rely on Article 27 of the LCIA Rules
The Claimants, including ICRA OC, sought to rely on the London Court of International Arbitration Rules 1998 (“LCIA Rules”) to request the arbitral tribunal to:
(a) Make an additional award, under Article 27.3; or
(b) Alternatively, make corrections to the Award, under Article 27.1.
Article 27 of the LCIA Rules provides that any application for a correction of the Award or an additional award has to be made within 30 days of the publication of the Award. However, by the time the Chinese court decided to refuse enforcement of the Award, the said time limit had expired for the Claimants to make any application. The LCIA expressed that "while sympathetic to the Claimants' position, … absent agreement of the parties or an order from a competent court extending time for the application" the arbitral tribunal was "functus officio", i.e. the arbitral tribunal’s authority on the matter had come to an end.
Claimants’ application under Section 79 of the Arbitration Act
The Claimants subsequently applied to the English Commercial Court to extend the deadline for its Article 27 application to the arbitral tribunal (the “Application”), under Section 79 of the Arbitration Act 1996 (the “Act”). Section 79(1) provides that:
"[U]nless the parties otherwise agree, the court may by order extend any time limit agreed by them in relation to any matter relating to the arbitral proceedings”.
The English Court’s decision
The Court analysed Article 27 of the LCIA Rules and Section 57 of the Act and concluded that there were no material differences between the two. On this basis, the Court considered Section 57 more thoroughly.
The Court referred to Torch Offshore LLC v Cable Shipping Inc [2004] EWHC 787 (Comm) in considering the power of the arbitral tribunal under Section 57(3)(a) and (b) of the Act. In Torch, it was stated that Section 57(3)(a) “can be used to request further reasons from the arbitrator or reasons where none exist”, because:
(a) The policy which underlies the Act is one of enabling the arbitral process to correct itself where possible, without the intervention of the Court; and
(b) If there was unarguably a clear failure to deal with an issue, it could be said that there was no ambiguity in the award, but an award which contains inadequate rationale or incomplete reasons for a decision is likely to be ambiguous or need clarification.
The Court took the view that allowing a tribunal to clarify or remove ambiguity, as permitted under Section 57(3)(a) of the Act, was the same as allowing a tribunal to address “any errors of a similar nature” under Article 27.1 of the LCIA Rules.
The arbitral tribunal had earlier denied a separate request by the Respondent for clarifications of the Award, stating that the grounds for granting corrections under Article 27 are narrow in scope. Notably the Court, in considering the Application, made no definitive comments on the scope of such grounds, but stated that Article 27 allows for clarification of an award through the use of a memorandum which then becomes part of the award.
The Court then, in identifying the Application as a claim that involves an “omission which may occasionally be made”, stated that if time was indeed extended by the Court, the Claimants would be entitled to request the arbitral tribunal to make corrections to the Award that would clarify a matter that omission had left unclear or ambiguous, and that the arbitral tribunal would control the process and correct the award accordingly.
Clarification is necessary so as not to impede justice and the arbitral process
The Court finally concluded that it would exercise its power under Section 79 of the Act to extend the time limit for application under Article 27.1 of the LCIA Rules. Its reasons were as follows:
(a) The Claimants, Respondent and the Chinese Court had no explanation from the arbitral tribunal of how the tribunal dealt with the issue of ICRA NCA and ICRA OC’s identities.
(b) The absence of an explanation meant that the Award was on uncertain terms, and this impeded the arbitral process.
(c) The Claimants had, in the name of justice, the right to have the uncertainty resolved by way of an explanation by the arbitral tribunal.
(d) Enabling the arbitral tribunal to add an explanation, so as to provide clarity or remove ambiguity, was a “just and reasonable approach” that would hold parties to their agreement to arbitrate, and which would assist the arbitration process.
The Court found that the Claimants had not unduly delayed in making their Application. The Claimants were reasonable in waiting for the decision of the Chinese court first, before then approaching the arbitral tribunal and the LCIA.
Notably, the Court confirmed that there is value in giving an arbitral tribunal opportunity for correction of its award. The denial of an opportunity for correction may lead to problems in seeking recognition and enforcement of an award in other parts of the world, which would serve no worthwhile end. Moreover, it would be unjust not to allow the tribunal to consider whether uncertainty can be removed.
Comments
This case reflects the English court’s emphasis on how the exercise of law and the operation of legal mechanisms should produce sensible and practical outcomes, not only towards matters within the UK but also globally. The pro-arbitration stance of the courts is also highlighted through how the court chose not to overturn the arbitral tribunal’s award, but instead invited the tribunal to correct its award. Finally, this case serves as a good reminder as to the importance of clarifying the identities of parties in any legal transaction, lest complications ensue.
JVL Agro Industries Ltd v Agritrade International Pte Ltd [2016] SGHC 126
Introduction
In this seminal case, the High Court set aside an arbitral award on the ground that the tribunal had breached natural justice, in making an award on the basis of an issue which had not been presented by the parties.
Facts
The parties, JVL and Agritrade, entered into 29 contracts between March and August 2008 for the purchase of palm oil. The parties subsequently entered into a “price-averaging arrangement” (the “PA Arrangement”), in light of a significant fall in the market price of palm oil in the second half of 2008, so that JVL could have more time to discharge its contractual obligations to Agritrade and lower the unit price at which it had bought and was to buy palm oil from Agritrade.
Sometime in 2010, as a result of a significant rise in the market price of palm oil, the parties found themselves unable to agree with the application of the PA Arrangement to five remaining contracts (the “Disputed Contracts”). Agritrade failed to ship the required amount of palm oil under the Disputed Contracts to JVL, and JVL commenced arbitration proceedings for breach of contract.
Before the arbitral tribunal, Agritrade raised the following defences to JVL’s claim:
- The PA Arrangement rendered each Disputed Contract void for uncertainty, as the key contractual terms of price, quantity, shipment period and discharge port were to be fixed only when the palm oil was actually shipped (the “Uncertainty Defence”);
- Alternatively, even if the Disputed Contracts were not void for uncertainty, they had been mutually terminated since the shipment date under each Disputed Contract had already passed without being performed (the “Prematurity Defence”).
Since Agritrade’s defences relied on the PA Arrangement, a “further subsidiary issue” arose: whether the PA Arrangement was within the scope of the parol evidence rule. Under the parol evidence rule, unless one of a limited number of exceptions applies, a party to a contract which has been reduced into documentary form cannot rely on evidence which is extrinsic to the document to vary, contradict, add to or subtract from the contract.
The tribunal found that the PA Arrangement was not subject to the parol evidence rule, as it was a collateral contract that was capable of varying the parties’ obligations under the Disputed Contracts.
It was thus concluded that Agritrade had not breached the Disputed Contracts. Instead, JVL had repudiated the Disputed Contracts by issuing a notice of default and purchasing palm oil off the market before the PA Arrangement was applied (the “Award”).
JVL applies to the High Court to set aside the Award
JVL then applied before the High Court to set aside the Award (the “Application”), under Section 24(b) of the Act (the “Act”). Section 24(b) provides that the High Court may set aside the award of an arbitral tribunal 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 three principal grounds of the Application were:
(a) JVL was unable to present its case to the tribunal or there was a breach of the rules of natural justice in connection with the making of the Award;
(b) The Award concerned decisions on matters which were beyond the scope of arbitration; and
(c) The tribunal displayed apparent bias towards JVL.
At the core of the Application was that the tribunal had decided against JVL on the collateral contract point, which was a point that Agritrade did not present before the tribunal. JVL thus had no opportunity to present its case on the same. As such, the Court decided to suspend the Application to give the tribunal an opportunity to receive any further evidence and submissions on whether the PA Arrangement was a collateral contract. The tribunal concluded that there was no need to receive further evidence and submissions, and reaffirmed their findings.
Upon expiry of the Application’s suspension, the hearing on the Application resumed.
The High Court’s analysis and reasoning
The High Court decided that the Award should be set aside. Its reasons were as follows:
A. JVL did not have a reasonable opportunity to present its case on an issue
While the Court recognized that caution must be had to unmeritorious attempts by disappointed parties to set aside unimpeachable awards, the Court also highlighted the importance of “whether there is a sufficient nexus between the chain of reasoning which the tribunal adopts and the case which the parties themselves have chosen to advance”. Accordingly, a particular chain of reasoning can be identified if it:
(a) arises from express pleadings;
(b) is raised by reasonable implication by pleadings;
(c) does not feature in pleadings but is in some other way brought to the other party’s actual notice; or
(d) flows reasonably from the arguments actually advanced by either party or is related to those arguments.
An alternative consideration was whether a “reasonable party to the arbitration could objectively have foreseen the tribunal’s chain of reasoning”. The overriding concern was whether the tribunal had achieved “substantial fairness”. If the tribunal exercised “unreasonable initiative” in its chain of reasoning, it was liable to have its award set aside.
The Court found the tribunal’s chain of reasoning on the collateral contract exception was one which did not give JVL a reasonable opportunity to present its case on the same, as
(a) Agritrade never advanced the collateral contract exception as part of its case; and
(b) The tribunal also never directed JVL to address the same.
B. The arbitral tribunal did not comply with its duty to confine itself to the issues selected by the parties for determination
Agritrade had forsaken the five opportunities it had to invoke the collateral contract exception and present its submissions. By doing so, the Court found that Agritrade had implicitly rejected the collateral contract exception.
The Court also pointed out that the tribunal did not specifically direct JVL to deal with the collateral contract exception, in that the tribunal had merely mentioned the collateral contract exception in the context of a hypothesis for comment rather than a thesis for proof or disproof.
Since the issue of a collateral contract had not been raised by the parties, as a matter of the arbitration procedure, the tribunal was precluded from adopting the same as part of its chain of reasoning.
Thus it also followed that the tribunal’s unilateral decision to find that the PA Arrangement fell within the collateral contract exception was a decision which effectively relieved Agritrade of the burden of invoking an exception to the parol evidence rule, and the burden of producing evidence to establish what was ultimately a dispositive issue.
The Court found that the tribunal had, in making the Award, exercised “unreasonable initiative” and breached natural justice.
C. There was a connection between the breach of natural justice and the Award, and JVL was prejudiced
The Court stated that there was “little doubt that the collateral contract point was connected to the making of the [A]ward”. The tribunal had seemingly not considered whether the evidence before it showed that the PA Arrangement satisfied the criteria to constitute a collateral contract. Since JVL was not given a reasonable opportunity to present evidence and advance submissions on the collateral contract exception, JVL had indeed suffered prejudice.
Following a quick rejection of JVL’s other submissions (as mentioned above), the Court concluded that the Award was to be set aside.
Comments
It is well-established that there exists a high threshold in respect of which an arbitral award may be set aside. This case is therefore significant in how it illustrates that the grounds for setting aside, while few and narrow, are nonetheless in the words of the Court, “fundamental in nature”. The Court was firm in maintaining that, while arbitration has the additional inquisitorial element compared to litigation, arbitration remains adversarial at its core. However strongly or poorly a case may have been formulated, or however an arbitrator may be compelled to reformulate the case, it remains at the parties’ discretion as to the issues that are to be determined.
It is not envisaged that this case will undermine arbitral awards made in the future. Instead, this case serves as an excellent reminder as to the fairness of the legal system not just in Singapore, but in the common law world.
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