Case Digests

Nature of Matter

Stay of Court Proceedings; Court’s Discretion Under the Arbitration Act

Case Summary

1. CA/CA 67/2021 is an appeal by the appellant, CSY, against the decision of the High Court judge (“the Judge”) granting an application of the respondent, CSZ to stay part of a High Court Suit (the “Suit”) in favour of a domestic arbitration and to stay the remaining part of the Suit on case management grounds pending the resolution of the putative arbitration. 
2. CSY is an exempt private company limited by shares. It was placed under judicial management in 2020 and a winding up order was made against it in 2021. It is presently in compulsory liquidation. The interim judicial managers, judicial managers and the liquidators of the appellant are referred to as the JMs hereafter.
3. CSZ is a limited liability partnership incorporated in Singapore and was engaged as the appellant’s external auditor from 2003 until it resigned on 17 September 2020. The respondent audited the appellant’s financial statements for each of the financial years (“FYs”) ending 31 October 2014 through to 31 October 2019.
4. The investigations conducted by the JMs revealed several serious irregularities in the appellant’s affairs since at least 2010. These appeared not to have been reflected or captured in the appellant’s audited financial statements. As a result of these irregularities, the appellant’s audited financial statements from FY2014 to FY2019 were materially misstated and/or did not give a true and fair view of the financial position and/or performance of the appellant. It also appeared in the audited financial statements that the value of the appellant’s total assets had been overstated from as early as FY2010 and as a result, the audited financial statements grossly misrepresented the financial position and performance of the appellant. The JMs set out their findings in two reports dated 22 June 2020 (predominantly on FY2019) and 6 November 2020 (predominantly on FY2018 and FY2017).
5. CSZ’s engagement was set out in separate engagement letters. Those for FY2008 to FY2015 were silent on dispute resolution, those for FY2016 and 2017 had an exclusive Singapore courts jurisdiction provision, the FY 2018 letter had an additional revised dispute resolution clause containing a tiered dispute resolution procedure culminating in arbitration in Singapore under the Singapore International Arbitration Centre rules (“the Tiered Arbitration Agreement”).  The FY2019 letter contained only the Tiered Arbitration Agreement.
6. The Tiered Arbitration Agreement provided for the following:

“In the event of any difference or dispute arising between the parties relating to the validity, interpretation, construction or performance of this engagement letter, the parties shall use their best endeavours to settle amicably such difference or dispute by consultation and negotiation.

If the matter is not resolved through negotiation, then the parties shall refer the matter to mediation in accordance with the rules and procedures of the Singapore Mediation Centre.

If, and to the extent that, any dispute has not been settled through negotiation and mediation, then the dispute shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (‘SIAC’) for the time being in force, which rules are deemed to be incorporated herein. The Tribunal shall consist of three (3) arbitrators. The seat and venue of the arbitration shall be Singapore and the language of the arbitration shall be English. Any award made hereunder shall be final and binding upon the parties hereto and judgment on such award may be entered into any court or tribunal having jurisdiction thereof.”

7. On 5 March 2021, the appellant commenced the Suit claiming that the respondent had failed to detect material misstatements in its audited financial statements for FY2014 to FY2019 and that this was in breach of the respondent’s contractual duties to audit the financial statements with reasonable care and skill; and further and alternatively, that the respondent had breached its tortious duty of care.
8. On 18 June 2021, the respondent filed an application seeking an order to stay the dispute pertaining to the audits for FY2018 and FY2019 (“FY2018 and FY2019 Dispute”) in favour of arbitration pursuant to s 6 of the Arbitration Act (“AA”) and/or the court’s inherent jurisdiction and an order that the dispute pertaining to the audits for FY2014 to FY2017 (“FY2014 to FY2017 Dispute”) be stayed pending the completion of the steps in the Tiered Arbitration Agreement. On 3 November 2021, the Judge allowed the application. On 30 November 2021, the appellant filed an appeal against the decision. 

Appellant’s case

9. The appellant’s case was that there was sufficient reason to decline to stay the FY2018 and FY2019 Dispute in favour of arbitration. The appellant contended that the multiplicity of proceedings that would result from staying the FY2018 and FY2019 Dispute would be a strong and important factor against ordering a stay. The parties’ longstanding intention to resolve disputes pertaining to the appellant’s conduct in court as envisaged by the majority of engagement letters ought to have been given greater weight by the Judge. Further, the appellant also argued that the additional costs associated with resolving the dispute in multiple forums, the potentially limited scope of discovery in arbitration and the advantage of having the court manage this dispute  amounted to sufficient reason to decline to stay the FY2018 and FY2019 Dispute in favour of arbitration.
10. If the court were to refuse to stay the Suit in respect of the FY2018 and FY2019 Dispute in favour of arbitration, the appellant took the position that there would in any event, be no basis to stay the FY2014 to FY2017 Dispute on case management grounds as it ought to be allowed to proceed concurrently in court. The appellant contended that it would not follow that the FY2018 and FY2019 Dispute should be determined before the FY2014 to FY2017 Dispute just because the JMs’ investigation started with FY2019. Further, any findings made by an arbitrator on the FY2018 and FY2019 Dispute would not affect or resolve the examination of the audits performed in FY2014 to FY2017. Thus, there was no basis to hold the resolution of the FY2014 to FY2017 Dispute in abeyance pending the resolution of the FY2018 and FY2019 Dispute. Finally, the appellant argued that it would suffer serious prejudice because the resolution of the entire dispute could well be delayed by a matter of years resulting in inefficiency, higher costs and duplication.

Respondent’s case

11. The respondent’s case was that there was no sufficient reason for the FY2018 and FY2019 Dispute to be stayed in favour of arbitration. Given the undisputed position that the FY2018 and FY2019 Dispute fell squarely within the Tiered Arbitration Agreement and the respondent has been and remains willing to arbitrate, the burden would be on the appellant to establish sufficient reason that would exceptionally allow it to disregard the parties’ express agreement to arbitrate. Any multiplicity of proceedings would not itself amount to such an exceptional circumstance. The ancillary reasons of additional costs, less extensive discovery in arbitration and court oversight would at best be neutral factors. 
12. Further, if the FY2018 and FY2019 Dispute was stayed in favour of arbitration, the FY2014 to FY2017 Dispute ought to be stayed on case management grounds. It would be sensible for the FY2018 and FY2019 Dispute to be resolved prior to the FY2014 to FY2017 Dispute in order to allow the proper ventilation of the issues in the latter dispute. The respondent also pointed out that there were significant and substantial overlaps between the FY2018 and FY2019 Dispute and the FY2014 to FY2017 Dispute which would give rise to the real prospect of a wasteful duplication of resources and of inconsistent findings being reached if both proceedings were to run in parallel. This was because the appellant’s claims were based on the investigations by the JMs in respect of the FY2019 and FY2018 audits with such findings extrapolated to the earlier FYs. Any failure by the appellant to prove its claim in respect of the FY2018 and FY2019 audits would seriously undermine its claim concerning the prior FYs.

Issues on appeal

13. Two principal issues arise for consideration in the appeal:
    (a) whether the FY2018 and FY2019 Dispute should be stayed in favour of arbitration under s 6 of the AA; and
    (b) if so, whether the FY2014 to FY2017 Dispute should be subject to a case management stay.

14. The Court of Appeal allowed the appeal as it found sufficient reason, under s 6 of the AA, not to stay the court proceedings and refer the matter to arbitration in accordance with the Tiered Arbitration Agreement. As such, the Judge erred in staying the FY2018 and FY2019 Dispute in favour of arbitration.

Whether the FY2018 and FY2019 Dispute should be stayed in favour of arbitration

15. The Court of Appeal held that there was a significant overlap between the factual issues in dispute such that the FY2014 to FY2017 dispute and the FY2018 and FY2019 Dispute would be nearly identical. The inquiry into whether the respondent had breached its duties in each FY would likely be similar notwithstanding possible differences from year to year. The evidence to be considered would likely be interconnected running across the audit for each FY.
16. Whether it is the putative arbitration or the action in court that would be heard first, the factual disputes over the respondent’s conduct in FY 2014 to FY2017 and possibly thereafter would likely be litigated twice before two different fora thereby giving rise to possible issues of issue estoppel and res judicata.
17. Even if the court and arbitration tribunal happened to come to the same findings and one of the parties to the court proceedings then brought an appeal, the Court of Appeal might come to a different conclusion. In such an event, this could result in the parties being bound by the arbitral tribunal’s decision in relation to the FY2018 and FY2019 Dispute even if the decision rested on factual findings or legal principles that have been held to be incorrect by the Court of Appeal in relation to the FY2014 to FY2017 dispute. This gives rise to an additional complication that the parties would have the right to appeal against the court’s findings but not the arbitral tribunal’s findings.
18. The parties only included the Tiered Arbitration Agreement in FY2018 and FY2019. There was nothing to specifically suggest that they intended this change in policy to apply even to a dispute spanning multiple years engaging substantially similar issues. The fact that they had chosen to structure the Tiered Arbitration Agreement under the AA instead of the International Arbitration Act (“IAA”) would suggest that they did not harbour a specific intention that the Tiered Arbitration Agreement they entered into for FY 2018 and FY 2019 was to have mandatory force regardless of the circumstances.
19. In the case of international arbitration, the court is mandated to stay court proceedings in favour of an international arbitration unless the arbitration agreement is “null and void, inoperative or incapable of being performed” under s 6(2) of the IAA. In the case of domestic arbitration, the court retains some discretion to refuse to stay court proceedings in favour of a domestic arbitration under s 6(2) of the AA. It may do so when it is satisfied that there is sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement or if the applicant seeking a stay was not ready and willing to do all things necessary for the proper conduct of the arbitration.
20. For all of the above considerations, the Court of Appeal concluded that it would be in the best interest of the parties for their entire dispute to be resolved in one forum. This would also avoid the prejudice of ending up with inconsistent findings. Therefore, there exists sufficient reason to refuse a stay of the FY2018 and FY2019 Dispute in favour of arbitration under s 6 of the AA. 

Whether the FY2014 to FY2017 dispute should be subject to a case management stay.

21. The Court of Appeal held that as the appellant’s prayer for an order that the FY2014 to FY2017 dispute be stayed pending the completion of the steps in the Tiered Arbitration Agreement is predicated on the stay of the FY2018 and FY 2019 dispute in favour of arbitration, the issue of imposing a case management stay for the FY2014 to FY2017 dispute is moot given the ruling not to stay the FY2018 and FY2019 Dispute in favour of arbitration. 

Nature of Matter

Setting aside of Arbitral Award; Breach of Natural Justice 

Case Summary

1. The first Appellant entered into a contract with the Respondent’s parent company to provide various equipment and services for the development of a steel-making plant (the “Plant”) on a site owned by the Respondent’s parent company (the “Contract”). The Respondent’s parent company subsequently assigned its rights, title, interest and liabilities under the Contract to the Respondent.
2. The Appellants and the Respondent subsequently entered into a Service Agreement under which the first Appellant assigned to the second Appellant the first Appellant’s obligations under the Contract to provide various services to the Respondent.
3. Unfortunately, the construction of the Plant was delayed, and the Plant never achieved its production target of 600,000 tonnes of hot rolled steel coils per year. The Respondent consequently purported to terminate the Contract.
4. Arbitration proceedings were subsequently commenced in August 2016 by both parties, and the arbitrations were consolidated by consent in October 2016.
5. In 2019, the majority of the Tribunal found that the Respondent had been induced to enter into the Contract by the Appellants’ misrepresentations, and was therefore entitled to rescind both the Contract and Service Agreement.
6. The Tribunal made various orders including that:
   1. The Appellants were to repay the Respondent the Contract price less various sums including the diminution in value of the Plant (the “Repayment Order”);
   2. The Respondent was to transfer title to the Plant, including the additional equipment installed, to the Appellants in return for payment under the Repayment Order (the “Transfer Order”); and
   3. The Appellants were to pay the Respondent damages to compensate the Respondent for five heads of loss and/or expenses which it would not have incurred but for the first Appellant’s misrepresentations (the “Damages Order”). The Tribunal permitted the Respondent to only recover 25% of its damages claimed under each of the five heads, as it found the Respondent’s evidence of the quantum of loss suffered to be deficient.
7. The Appellants sought to set aside the Tribunal’s award on the following grounds:
   1. The Transfer Order should be set aside:
      1. under Art 34(2)(a)(iv) of the Model Law, on the basis that it is uncertain, ambiguous, impossible and/or unenforceable and therefore not in accordance with the parties’ agreement, the Rules of Arbitration of the International Chamber of Commerce (“ICC Rules”) and/or the Model Law;
      2. under Art 34(2)(a)(iii) of the Model Law, on the basis that it contains decisions on matters beyond the scope of the submission to the arbitration; and
      3. under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”) on the basis that it was obtained in breach of natural justice and/or without giving the Appellants an opportunity to present their case on the same;
   2. The Repayment Order should be set aside under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the IAA on the basis that it was issued in breach of the fair hearing rule and/or the “no evidence rule”, and is therefore contrary to natural justice;
   3. In the event that either the Transfer Order or Repayment Order is set aside, the other Order should also be set aside on the basis that the two Orders are “reciprocal, interdependent and necessarily contingent on each other”;
   4. The Damages Order should be set aside under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the IAA on the basis that it was issued in breach of the fair hearing rule and/or the “no evidence rule”, and is therefore contrary to natural justice; and
   5. The award (or part thereof) should be set aside on the basis that the Tribunal breached its duty to provide sufficient reasons on material issues in the award.
8. The HC dismissed the Appellants’ application to set aside the award: 
   1. It rejected the Appellants’ argument that the Transfer Order could be set aside under Art 34(2)(a)(iv) of the Model Law because:
      1. Art 34(2)(a)(iv) could only apply to a breach of arbitral procedure, and the Appellants’ complaints about the Transfer Order were in effect complaints about the substance of the Transfer Order; and
      2. the Appellants had waived their right to rely on Art 34(2)(a)(iv) to challenge the Transfer Order.
   2. Even if the above-stated points were incorrect, the Appellants’ challenge under Art 34(2)(a)(iv) would still fail because:
      1. There was no authority, and nothing in the Model Law or ICC Rules, which supported the proposition that an arbitral award could be set aside merely on the basis that it was unenforceable or unworkable; and
      2. In any event, the award was not unworkable.
   3. As to the issue of whether the Transfer Order was beyond the scope of the parties’ submission to arbitration under Art 34(2)(a)(iii) of the Model Law: 
      1. the HC rejected the Appellants’ contention that Art 23 of the ICC Rules required the Terms of Reference to state in detail every single head of claim that was advanced in the arbitration;
      2. Further, even if Art 23 imposed such a requirement on the parties, paragraph 78 of the Terms of Reference was broad enough to bring counter-restitution of the Plant in specie within the scope of the submission to arbitration; and
      3. The Appellants had waived their rights to rely on Art 34(2)(a)(iii) of the Model Law to challenge the Transfer Order.
   4. Finally, the HC declined to set aside the Transfer Order on the basis that it was tainted by a breach of natural justice because the issue of counter-restitution in specie had been live throughout the arbitration.
   5. In relation to the Repayment Order, the HC held that:
      1. The Tribunal did not breach the fair hearing rule in making the Repayment Order. The diminution in value of the Plant had been a live issue in the Arbitration from the very outset and the Appellants could well have presented their case on the same if they had so desired; and
      2. The “no evidence rule” should not be accepted as part of Singapore law. Even if it were to be accepted as a free-standing rule of natural justice, it could not apply to a situation where, as in the present case, the Tribunal had no evidence before it on a material issue of fact simply because the party who bore the burden of proof on that issue had failed to adduce such evidence. 
   6. In relation to the Damages Order, the HC held that:
      1. the fair hearing rule had not been breached as the Appellants could have advanced an alternative case on the quantum of the Respondent’s reliance loss, but had refused to do so; and
      2. Even if the “no evidence rule” were accepted as a free-standing rule of natural justice, the Tribunal did have evidence before it to justify the Damages Order. 
   7. Finally, the HC rejected the Appellants’ contention that the award and its contents were inadequately reasoned. As far as the Transfer Order was concerned, it was clear that the Transfer Order was enforceable and workable, and no further explanation was required on the Tribunal’s part. Taken as a whole, the award did provide sufficient reasons to inform the parties of the bases on which the Tribunal had reached its decision on the essential issues.

9. On appeal, the Court of Appeal (“CA”) upheld the HC’s decision save in respect of the Damages Order, which was set aside.

Whether the Transfer Order should be set aside on the basis that it was “uncertain, ambiguous, impossible and/or unenforceable”

10. As regards the Appellants’ contention that the Transfer Order was unenforceable, the CA considered that:
    1. this did not form any basis to set aside the Transfer Order under s 24 of the IAA or Art 34 of the Model Law;
    2. the Appellants’ reliance on Art 41 of the ICC Rules (“Art 41”) was misplaced, because a tribunal’s primary duty under Art 41 is to ensure that the procedural requirements for enforcement are satisfied. Insofar as the substantive requirements for enforcement are concerned, the tribunal will be found to have discharged its duty under Art 41 as long as it can show that it has used “every effort” to ensure the enforceability of the award in the jurisdictions where the award can reasonably be expected to be enforced. It woulAwad be unreasonable to impose on the tribunal a duty to accurately predict or guarantee the outcome of such a discretionary exercise; and
    3. there is no implied term in every arbitration agreement that the resulting award shall be in a form which is capable of being enforced in the same manner as a judgment.
11. The CA also considered that uncertainty and/or ambiguity do not form any basis to set aside an award under Art 34(2)(a)(iv) of the Model Law. In any event, the Transfer Order was not in fact uncertain or ambiguous.
12. The CA further rejected the Appellants’ contention that the Transfer Order should be set aside because it is impossible or unworkable, as this was unsupported by any legal authority. In any event, the CA considered that the Transfer Order was not in fact impossible or unworkable.
13. The Appellants also failed to show that the Transfer Order violated the parties’ agreement as to the arbitral procedure for the award, which would have justified setting aside the award under Art 34(2)(a)(iv) of the Model Law. This was because the Appellants’ complaints were aimed at the substance of the award, and not about the arbitral procedure adopted by the Tribunal.
14. Further, since the issue of the Respondent making counter-restitution to the Appellants in specie was a live issue throughout the arbitration, the Appellants’ failure to raise their complaints in relation to the Transfer Order during the arbitration meant that they had waived their right to rely on these grounds in the setting aside application.

Whether the Transfer Order contained decisions on matters beyond the scope of the submission to the arbitration

15. The CA agreed, citing the case of TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972, that an issue which surfaces in the course of an arbitration, which is ancillary to the dispute submitted for 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 memorandum of issues or pleading.
16. On the facts, the Transfer Order did not contain decisions on matters beyond the scope of the submission to the arbitration, since the issue of the Respondent’s counter-restitution of the Plant in specie was one of the factual or legal issues resulting from the parties’ submissions. It was the natural legal consequence of the Respondent’s counterclaim for rescission, as set out both in the Terms of Reference and in the Respondent’s pleadings.

Whether the Transfer Order was obtained in breach of natural justice and/or without giving the Appellants an opportunity to present their case

17. The CA considered, upon its review of the Terms of Reference, pleadings, lists of issues, and submissions, that the Appellants knew that counter-restitution of the Plant in specie was a live issue in the arbitration. The Appellants were therefore afforded a reasonable opportunity to submit on the issue.

Whether the Repayment Order should be set aside

18. The CA declined to set aside the Repayment Order, pertinently because:
    1. the issue of the diminution in the value of the Plant was a live issue in the arbitration. Having failed to adduce any evidence on this respect, the Appellants could not now argue that they had been denied a fair hearing; and
    2. the “no evidence rule” should not be adopted as part of Singapore law, as to do so would run contrary to the policy of minimal curial intervention in arbitral proceedings. Even if the “no evidence rule” were to be applied in the present case, it cannot apply to the present situation where the tribunal has no evidence before it on a material issue of fact because the party (i.e. the Appellant) who bears the burden of proof on that issue has failed to adduce any such evidence.

Whether the Damages Order should be set aside

19. The CA held that to comply with the fair hearing rule, the tribunal’s chain of reasoning must be (i) one which the parties had reasonable notice that the tribunal could adopt; and (ii) one which has a sufficient nexus to the parties’ arguments.
20. The CA held that the Damages Order should be set aside because the fair hearing rule had been breached in this case:
    1. A reasonable litigant in the Appellants’ shoes could not have foreseen that the Tribunal, having noted all the deficiencies in the Respondent’s evidence, would then go on to adopt a figure of 25% of the amount claimed as being the loss incurred. Instead, the parties would have expected the Tribunal to dismiss the Respondent’s claim for reliance loss in its entirety;
    2. the Tribunal’s chain of reasoning did not have a sufficient nexus to the parties’ arguments. The Respondent had acknowledged in its submissions that, even if the Tribunal were to adopt a “flexible approach” to award some damages to the Respondent, the Tribunal had to first be satisfied that the Respondent’s evidence was “more likely to be true than not”. The Tribunal’s reliance on the “flexible approach” to award damages to the Respondent despite there being no evidence of the Respondent’s loss therefore had no connection to the issue before the Tribunal of what the appropriate award of damages to the Respondent should be; and
    3. this breach of natural justice was connected to the making of the award, as the Tribunal awarded the Respondent 25% of its claimed reliance loss based on the “flexible approach”. This breach of natural justice prejudiced the Appellants’ rights.
21. The CA rejected the Respondent’s request to remit the award back to the Tribunal, as a reasonable person would not have the confidence that the Tribunal would be able to reconsider the issue remitted in a fair and balanced manner, after having assessed how the impugned decision had been arrived at. Accordingly, the Damages Order should be set aside.

Whether the award (or part thereof) be set aside on the basis that the Tribunal breached its duty to provide sufficient reasons on material issues in the award

22. The CA re-stated the principle that whether a given decision is sufficiently reasoned is a matter of degree and must be considered in the circumstances of each case – even if no reasons were given in an arbitral award, this would not invariably cause the award to be set aside for breach of natural justice.
23. On the facts, the CA did not agree that the award should be set aside on the basis that it does not contain sufficient reasons for the Tribunal’s decision.

Nature of Matter

Setting aside of Arbitral Award; Breach of Natural Justice; Tribunal’s Powers and Peremptory Orders

Case Summary

1. The defendant, the owner of a vessel (“Owner”), claimed against the plaintiff charterer (“Charterer”) for an amount of US$248,338.24 in the arbitration. The Owner was awarded a partial/interim award in the sum of US$48,658.74. Ten months after the partial award was made, the Owner sought to recover the remaining sum of its claim and served further submissions for the balance.
2. Without hearing the Charterer on the time it would need to prepare and serve its defence submissions, the arbitrator issued a final and peremptory order that the Charterer serve its defence submissions by a specified date and hour, failing which they would be barred from advancing any positive case by way of defence or counterclaim and from adducing any positive evidence in the matter, and that it would then simply be for the Owner to prove its case.
3. Subsequently, the Charterer failed to serve its defence within the time stipulated. The arbitrator then directed that the Charterer’s defence submissions would not be admitted into evidence, and that the claim would be determined based on the Owner’s evidence.
4. The arbitrator made the second/final award (“Second Award”) without hearing witnesses and on a documents-only basis as requested by the Owner in its email.
5. The Charterer applied to set aside the award on the basis of a breach of natural justice.

6. The High Court set aside the Second Award.
   
   Powers of an ad hoc arbitrator to make and enforce peremptory orders and how such powers should be exercised
   
   
7. The High Court began by observing that the powers of an arbitrator derive from: (i) the arbitration agreement between the parties; (ii) a statute in force at the choice of seat; and (iii) the arbitral rules governing the arbitration. As the seat was Singapore, and no arbitral rules were chosen by parties, the arbitrator should have looked to the Model Law before considering whether to make or enforce any peremptory orders.
8. Articles 23 and 25 of the Model Law read together provide that where a respondent fails to communicate his statement of defence within the period of time agreed by the parties or determined by the arbitral tribunal, without showing sufficient cause, then the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegation.
9. Based on Articles 23 and 25, the arbitrator should have, at the first stage, consulted both sides before determining the period of time for communicating the statement of defence in the absence of agreement. At the second stage, when considering whether the party in default has shown sufficient cause for the failure to communicate the statement of defence within the period fixed, the arbitrator must hear both parties.
   
   Whether the arbitrator acted within his powers, and exercised them in accordance with the principles of natural justice
   
   
10. The High Court found that the arbitrator acted in breach of natural justice because the arbitrator, amongst others:
    a Failed to give the Charterer any opportunity to provide input on the time needed to serve defence submissions;
    b Failed to determine insufficiency of cause for the purported default by the Charterer; and
    c Failed to give the Charterer an opportunity to address him orally or in writing on the question of sufficiency of cause before proceeding to make his peremptory order.
11. The peremptory order was therefore made and enforced in breach of the fair hearing rule.
12. As the making of the peremptory order led to the arbitrator making the Second Award without receiving any evidence or submissions from the Charterer, the High Court found that the breach of natural justice was connected to the making of the Second Award and prejudiced the Charterer’s rights.
13. The High Court also declined the Owner’s request for the matter to be remitted to the arbitrator as an alternative to setting aside. The High Court stated that this was not a case of mere oversight in failing to give a party a reasonable opportunity to be heard on some aspect of a dispute. Rather, the peremptory order and the exclusion of the defence submissions appeared to be the product of a haste out of keeping with the time accorded to the Owner for its submissions. This would affect the Charterer’s confidence in the arbitrator to decide the matter fairly if remitted.

Nature of Matter

Setting aside of Arbitral Award

Case Summary

1. The Plaintiff and the 1st Defendant entered into a contract (“Contract”) where the Plaintiff was appointed as a sub-contractor for the design, supply, installation, testing and commissioning of overhead cranes (“Overhead Cranes”) for a warehouse and container depot.
2. A dispute arose regarding whether the Overhead Cranes supplied by the Plaintiff were defective. The 1st Defendant claimed that the Overhead Cranes were of unsatisfactory quality under the Contract and/or the Sale of Goods Act (“SOGA”). After the 1st Defendant terminated the Contract on grounds of breach, it commenced arbitration under the Singapore International Arbitration Centre seeking, among others, a rescission of the Contract and a refund of the sums it had paid to the Plaintiff.
3. The arbitrator found in favour of the Defendants on the issues of breach by the plaintiff of the SOGA, the 1^st Defendant’s right to terminate the Contract and to treat the plaintiff’s breach of the Contract as repudiatory.
4. After the arbitrator rendered his award (“Award”), the Plaintiff conducted a site visit and discovered that the Overhead Cranes had not just been dismantled but had been damaged and/or destroyed.
5. The Plaintiff then commenced an application pursuant to s 48(1)(a)(vi) of the Arbitration Act to partially set aside the Award on, inter alia, the following grounds:
   (a) the Award was induced or affected by fraud and should be set aside. The 1^st Defendant dishonestly concealed from the arbitrator the fact that the Overhead Cranes had, before or during the arbitration, been dismembered and/or destroyed, with several key parts missing and/or cannibalised by the 1^st Defendant for its own use.
   (b) The 1^st Defendant’s fraudulent conduct deprived the Plaintiff of a reasonable and/or fair opportunity to make arguments regarding the alleged actual condition of the Overhead Cranes, and specifically, to resist the claim by the 1st Defendant for rescission of the underlying contract and/or mount significant defences to the claim for rescission.
   (c) The Award was contrary to public policy because it was rendered on the basis of an egregious error of fact that the Overhead Cranes had not been damaged.

6. The High Court dismissed the setting-aside application.
   
   The Plaintiff’s fraud objection was not made out
   
   
7. The High Court found that the Plaintiff had neither adduced the necessary strong and cogent evidence for fraud, nor established the three core elements of procedural fraud, namely: (a) dishonesty or bad faith; (b) the causal link between the new evidence and the decision of the tribunal; and (c) the non-availability of the evidence during the arbitration.
8. On element (a) dishonesty or bad faith, the High Court did not find any indication of dishonesty or bad faith in the way that the 1^st Defendant had conducted itself during the Arbitration. Given that the Plaintiff did not plead and raise the issue of a diminution in the value of the Overhead Cranes resulting from the dismantlement in the arbitration, there was good reason for the 1st Defendant not to have disclosed anything regarding the alleged actual state of the Overhead Cranes to the arbitrator
9. On element (b), this was also not made out because evidence of the alleged actual condition of the Overhead Cranes could not be said to be decisive, in that it would have necessarily resulted in the arbitrator coming to a decision in favour of the Plaintiff instead of the 1^st Defendant.
10. As regards element (c), the High Court was of the view that evidence regarding the condition of the Overhead Cranes could have been obtained with reasonable diligence at the time of the arbitration.
    
    There was no breach of natural justice in the making of the Award
    
    
11. The High Court rejected the Plaintiff’s argument that the fair hearing rule was breached because it was precluded from presenting to the arbitrator a different defence or counterclaim based on the Overhead Cranes being allegedly damaged or destroyed. The High Court observed that it is the Plaintiff’s duty to seek and adduce evidence regarding the condition of the Overhead Cranes and to take all the relevant points in its pleadings and submissions. Where it has failed to do so, it cannot be permitted, at the setting-aside stage, to regain ground from its omission to make the relevant inquiries, and its decision to run its case in a certain way.
    
    Award was not contrary to public policy
    
    
12. Given that the Plaintiff’s allegations of fraud have been rejected by the Court, the Plaintiff’s public policy objection which is grounded on those same allegations also fails.