Case Digests
By Daniel Seligman, Columbia Research Corp.
Nature of the Case
Facts and Chronology of Events
In December 2017, applicant Vitol, a trader in oil products, was approached by a broker who said he had been contacted by Saiful Alam (“Saiful”), who described himself as the “Field Sales Manager” of respondent Machlogic. Saiful told the broker he was interested in supplying a substantial cargo of gas oil to the applicant. Saiful followed up with an offer made on the respondent’s letterhead. As part of the applicant’s routine due diligence, it asked Saiful for additional information about the respondent. Saiful responded by email and copied Choo Foong Yee (“Choo”), the respondent’s director. The two companies eventually signed a contract, which Saiful executed as an employee of respondent.
The contract required the respondent to deliver gas to the applicant. The final clause of the contract stated :
The respondent failed to perform and did not deliver the gas oil to the applicant. The applicant took the position that the respondent’s failure amounted to a repudiatory breach of the contract. In May 2018, it notified the respondent that it was terminating the contract. The respondent, however, did not reply. Instead, the respondent’s director, Choo, investigated the matter internally and found emails between the applicant and Saiful which had gone into her junk mail folder. She said she read the email chain for the first time and pieced together what she believed was a conspiracy involving Saiful, her supposed employee and agent, and the applicant to allegedly defraud the respondent. She confronted Saiful and asked him about the Vitol contract but Saiful allegedly disappeared in June 2018 without any explanation.
Then, in July, the applicant hired counsel who demanded damages in about $US279,000 from the respondent for losses and gave the respondent 14 days to comply. Now, for the first time, the respondent interacted with applicant and denied any liability. Choo, acting for the respondent, refused to make payment. The parties met in an attempt to resolve the matter amicably but the attempt failed.
Later that month, the applicant served a notice of arbitration on the respondent asserting that the contract between the two companies provided for disputes to be submitted to arbitration. The notice said the applicant seeks “your agreement in the appointment of a sole arbitrator.”
Choo acknowledged that she received the email but continued to deny that the respondent was bound by any contract with the applicant. The respondent did not hire legal representation for the arbitration nor did it cooperate in appointing an arbitrator.
In August, the applicant applied to the president of the Court of Arbitration of the Singapore International Arbitration Centre (“SIAC”) to appoint a sole arbitrator. Ms. Choo responded to this letter. She again denied that the respondent was bound by any contract with the applicant. She did not comment on the three names which the applicant had proposed. She also did not propose any names on behalf of the respondent.
The President of the Court of Arbitration of the SIAC appointed the sole arbitrator in September 2018 and the arbitration proceeded as an ad-hoc arbitration.
The arbitrator then proceeded documents-only and issued a final award in February 2019. The arbitrator decided that there was a valid and binding contract between the parties. She also found that the respondent had adduced no evidence that Saiful lacked authority to bind the respondent. Thus, she accepted that the respondent was in repudiatory breach of the contract and awarded the applicant its claim in full: just over US$279,000 in damages plus costs.
The applicant secured leave ex parte in August 2019 to enforce the award as a judgment of the High Court under s 19 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Act”) and the respondent applied to set aside the applicant’s leave to enforce the award.
The respondent resisted enforcement of the award on three of the grounds prescribed in Art 36 of the Model Law:
- The arbitration agreement on which the applicant relies is not in truth an arbitration agreement within the meaning of s 2A(1) of the Act. In the alternative, the arbitration agreement is vitiated by corruption and fraud in which the applicant was complicit. The arbitration agreement is therefore “not valid” under Singapore law.
- The contract between the parties was procured by fraud and corruption in which the applicant was complicit. The arbitrator’s decision to proceed documents-only deprived the respondent of the opportunity to present and test viva voce critical evidence going to the issue of fraud and corruption. The respondent was therefore unable to present its case in the arbitration.
- Because the parties’ contract was procured by fraud and corruption, enforcing the award is contrary to the public policy of Singapore.
Summary of Ruling
The High Court rejected each of the respondent’s arguments to resist enforcement of the arbitral award, and it therefore dismissed the respondent’s application.
First, the Court found that by operation of section 2A(6) of the Act, there was a deemed an effective arbitration agreement between the parties. The section requires a respondent to deny a claimant’s assertion that an arbitration agreement exists between the parties. In this case, the respondent failed to do so. The respondent’s general denial of a contract between the parties, through Choo, did not amount to a denial that there was an arbitration agreement for purposes of the section. In other words, the section requires a respondent to deny specifically a claimant’s assertion of an arbitration agreement. A general denial of a contract will not suffice for purposes of the section.
Consequently, the arbitration and the award in the case were based on an arbitration agreement between the parties which section 2A(6) deemed to be effective. This arbitration agreement operated without any connection to the parties’ underlying contract and was therefore untainted by any fraud or corruption which may vitiate that underlying contract.
Second, the Court decided that there no procedural defect in the arbitrator’s decision to proceed documents only. Significantly, at no time did the respondent positively request for a viva voce hearing pursuant to the respondent’s right to do so under Art 24(1) of the Model Law. In any case, even if the arbitrator’s decision to proceed documents-only did in fact render the respondent unable to present a portion of its case, the root cause of any prejudice was the respondent’s own failure to adduce witness statements and its confusion about the effect of proceeding with a documents-only arbitration.
Third, the Court rejected the respondent’s argument that the fraud or corruption (which the Judge assumed to exist in the formation of the parties’ contract) in itself suffices to justify refusing enforcement of the award. There were three reasons for the Court’s decision: (a) there is no authority for such a proposition; (b) such an argument undermines the finality of arbitration awards because the respondent deliberately chose not to place the issue of fraud or corruption in the formation of the contract before the arbitrator, and therefore, by reason of the extended doctrine of res judicata, the respondent could not rely on that basis as a ground for refusing enforcement of the award; and (c) the argument undermines the policy of minimal curial intervention.
By Tan Yi Lei and Justin Gan, Stephenson Harwood (Singapore) Alliance
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Nature of Matter |
Setting Aside of Arbitral Award – Whether arbitral procedure was in accordance with agreement of parties / party unable to present case |
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Case Summary |
The Claimant commenced an arbitration on 14 June 2018 which was subject to the Singapore International Arbitration Centre ("SIAC") Rules (6th ed, 2016) ("SIAC Rules"). By the parties’ agreement, the arbitration would be conducted as an expedited arbitration according to the Expedited Procedure in the SIAC Rules, and the SIAC accordingly directed as such. Although the Claimant was legally represented when the notice of arbitration was submitted on its behalf, the Claimant subsequently discharged its counsel and the Claimant's General Manager ("R") instead acted as the party representative. On 30 October 2018, a procedural order was made which provided, amongst others, that "[w]here a party is represented by Counsel, communications with the Tribunal shall be with Counsel instead of the Party's representatives." ("Procedural Order"). On 28 January 2019, Claimant instructed a new counsel ("T") for the hearing of 11 to 13 February 2019. After the award for the expedited arbitration was issued (the “Award”), the Claimant sought to set it aside on the following arguments:
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| Ruling |
The Court dismissed the Claimant's setting-aside application. Co-Counsel Argument A party has a common law right to choose his representation in arbitration, although this right can be limited by statute. Under the SIAC Rules, a party may choose to be represented by both legal counsel and non-legally-qualified party representatives. However, the more important question is whether a contention concerning the infringement of a party’s right to choose representation would deprive the party of a reasonable opportunity to present its case. In this case, when the tribunal sought clarification from the Claimant on the intended role of R, the Claimant only requested that R participate in the Opening Statement. The Claimant alleged the tribunal had expressed an understanding that R's role was to be limited. The Court found this to be untrue as the Claimant was given an opportunity to address R’s involvement in the arbitration, and it was the Claimant who expressed that R would participate during the Claimant’s opening statement at the hearing, and solely in that aspect. The Court also highlighted that the Claimant should have highlighted any concern to the tribunal. It should not have held it in reserve in an attempt thereafter to set aside the Award when the matter did not go the Claimant's way. Agreed Procedure Argument There was nothing untoward about the Procedural Order. It was understandable that a tribunal may not wish to have multiple lines of communications with a single party. A tribunal can reasonably direct that there be one line of communication between each party and the tribunal. Further, T had introduced herself as "the Claimant's Counsel" and requested R be copied in further correspondence. The tribunal responded and referred to the Procedural Order and requested that the Claimant follow the arrangement in the Procedural Order (i.e. communications only with Claimant's counsel). The Claimant "noted" the directions and comments in respect of the Procedural Order, without objecting. Further, the Claimant could have, but did not apply to vary the Procedural Order. Instead, it waited until after the Award had been issued, and then complained that the Procedural Order had infringed its right to decide how it would be represented in the arbitration. Interruption Argument The alleged interruption was found to be entirely innocuous and the tribunal had merely indicated in its alleged interruption, what it understood from R's presentation in the Opening Statement and the areas which it wished R to address further. If such a complaint were to succeed, it would reduce tribunals to passive observers until the time came for them to render their decision. The question the Court should ask is whether the tribunal did (or decided not to do) falls within the range of what a reasonable and fair-minded tribunal in those circumstances might have done. Tribunal Declined R's Question Argument The tribunal declined R's request to question a witness (after T had indicated the Claimant had no further questions). The Court declined to set aside the Award on this basis. First, this was outside the scope of R's agreed speaking role at the hearing – i.e. to address the tribunal solely on the Claimant's Opening Statement. Second, there was no protest from the Claimant. R could have asked the tribunal to reconsider its decision not to allow R to question the witness, or could have instructed T to ask the question, or T could have sought time to take instructions from R on that, or R herself could have asked for time to speak with T. None of this happened and instead T said that the Claimant had no further questions for the witness. Third, the Claimant did not adduce evidence to show that R's intended questions would reasonably have made any difference to the tribunal's deliberations. FRP Claim Argument The Court found that the tribunal did not fail to deal with the Claimant's FRP claim. First, the tribunal had dealt with each individual component of the FRP claim in its award and dismissed each of them. Second, the Claimant attempted to recharacterize its claim as being on the basis that its FRP invoice had not been disputed until the arbitration – but the Court found this argument had not been raised in the arbitration. Third, the FRP invoice did not contain any provision which gave the Claimant the right to be paid the amount stated on the FRP invoice unless a formal dispute was brought within a certain time, notwithstanding that the Claimant was actually not entitled to the components in the FRP invoice. Fourth, at the highest, the Claimant's complaint would be that the tribunal had failed to comprehend its recharacterized claim and appreciate its merits. However, an inference that the arbitrator had acted in breach of natural justice should not be drawn if the facts are also consistent with the arbitrator simply having misunderstood the aggrieved party’s case. In this case, the Court found that the tribunal applied itself (meticulously) to addressing the Claimant’s FRP claim. The Claimant in fact acknowledged that the tribunal had examined and rejected each component of the FRP invoice, but argued that the tribunal had failed to consider whether the Claimant was nevertheless entitled to be paid on the FRP Invoice. The FRP Claim Argument therefore had no merit |
By Tan Yi Lei and Justin Gan, Stephenson Harwood (Singapore) Alliance
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Nature of Matter |
Setting Aside of Arbitral Award – Whether an award may be set aside if an issue of law was decided wrongly; characterisation. |
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Case Summary |
In 2001, the Claimant and the first Respondent entered into a shareholders agreement in respect of a joint venture company, Himalaya Simplot Pvt Ltd ("HSPL"). In 2012, the first and second Respondents (hereinafter referred to as the "Respondents"), the Claimant and HSPL entered into a master agreement ("MA") under which the second Respondent agreed to purchase Potato Processing Equipment ("PPE") that HIL had been using to produce potato products, and to lease a portion of HIL's food processing plant in India. It was envisaged that the second Respondent would use the PPE to produce and sell potato products to HSP for marketing and resale. Under the MA:
Disputes arose between the parties in connection with the MA which were referred for arbitration. The tribunal ruled that HIL breached the Representations and Warranties as it was found the PPE was not fit for purpose to meet the production requirements on quality at the required volume. The tribunal therefore awarded the Respondents damages and retention of the Holdback Amount partly to cover expenditure on the PPE and partly as part of payment towards damages. The Claimant applied to set aside the arbitral award on the basis that it dealt 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. |
| Ruling |
The Claimant's first contention was that the tribunal exceeded the scope of submission to arbitration because the Representations and Warranties did not refer to the PPE producing "quality" potato products. In finding that the PPE had to also meet quality requirements, the Claimant contended that the tribunal had decided an issue that was not properly before it. The Court however disagreed with the Claimant’s contention:
The Claimant next contended that the tribunal's finding in relation to the production requirements (i.e. quantity of product produced) was linked to its finding on the quality issue. The Court also did not accept this contention. On the facts, it was found that the tribunal had framed the issues independently. There were 2 distinct obligations the PPE had to meet: quantity and quality. Finally, the Claimant contended that the tribunal exceeded the scope of the reference by awarding damages in excess of the Holdback Amount - by taking both qualitative and quantitative aspects into account in its assessment. The Court found that the argument on damages was dependent on its argument on "quality", and the Claimant was here seeking to challenge a point which had already been accepted before the tribunal. The Claimant's application was therefore premised on a contentious interpretation of the MA (whether the Representations and Warranties imposed requirements not only as to quantity but also as to quality) and in reality a challenge to the substantive correctness of the tribunal's decision – i.e. a backdoor appeal. The application was accordingly dismissed.
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By Nur Hijazi Jaffar and Justin Gan, Stephenson Harwood (Singapore) Alliance
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Nature of Matter |
Setting Aside of Arbitral Award – Whether setting aside application was made within the three-month time limit: MAL Arts.33-34 Setting Aside of Arbitral Award – Whether there is breach of natural justice |
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Case Summary |
The facts of this matter can be found in our December 2019 newsletter where we reported on the High Court decision in BRQ and Anor v BRS and Anor [2019] SGHC 260. Briefly, the Tribunal issued a final award ("Award") that was in substance in BRQ's favour (“Buyer”). However, the Tribunal limited BRS’s liability (“Seller”) with respect to certain time-dependent components to 30 June 2014 ("the Cut-Off Date"), as opposed to the Actual Completion Date. On this issue, the Tribunal considered that the Project could have been completed on the Cut-Off Date if the Buyer had undertaken the construction and commissioning of the Project in the most prudent and cost-effective manner. Both the Seller and the Buyer were dissatisfied with various aspects of the Award, and they each filed separate Originating Summonses to set aside portions of the Award, on the bases that the Tribunal had either acted in breach of natural justice and/or in excess of its jurisdiction. Both setting aside applications were dismissed by the judge in the first instance. The parties appealed against the dismissal of their respective application. |
| Ruling |
The Court of Appeal dismissed the Seller's appeal but allowed the Buyer's appeal. Seller’s Appeal There was a preliminary issue whether the Seller's setting aside application was filed out of time. The Buyer took the position that the Seller's setting aside application was filed out of time. In this case, the Parties had received the Award on 31 January 2018 but the Seller only filed its setting-aside application on 22 June 2018, which exceeded the three-month time limit to file a setting-aside application. The Seller contended that it had made a correction request to the Tribunal ("the Correction Request") on 1 March 2018, which the Tribunal dismissed on 23 March 2018. Therefore, the three-month time limit would only run from 23 March 2018. Although the Buyer accepted that the Seller had filed a request for correction, the Buyer however took the position that the Correction Request was not in substance an actual request for correction under Article 33 of the Model Law which would have triggered an extension of the time limit to apply to set aside the Award. The Seller disagreed, and argued that it was the form of the request that mattered, not the substance. The Court of Appeal held that the Seller’s setting aside application was not filed in time. In coming to this decision, the Court of Appeal explained that the substance of Article 33 of the Model Law must be met, if an Article 33 request is to trigger an extension of time under Article 34. In this instance, the Court of Appeal formed the view that the Seller's requests, were in fact, attempts to review the Tribunal's decision on the substantive merits of the case, and not matters properly under the Article 33 "slip rule". The Court of Appeal also pointed out that the Tribunal had dismissed the Seller's Correction Request on 23 March 2018 which was before the expiry of the three month period. Given that the Seller had received the Award on 31 January 2018, the Seller could have filed its setting aside application by 31 April 2018 to avoid any argument that their application was filed out of time. Given the above sufficed to dispose of the Seller’s setting-aside application, the grounds raised by the Seller in support of its setting-aside application were accordingly academic. Buyer’s Appeal In the Award, the Tribunal had considered that the Cut-Off Date should be 30 June 2014 because the Tribunal formed the view that the most prudent and cost-effective measure was for the Buyer to simply repair the penstock by patching and re-welding its cracked areas ("the Rewelding Method"). Instead, the Buyer decided to reline the penstock with a different grade of steel ("the Relining Method"). The Tribunal concluded that if the Buyer had proceeded with the Rewelding Method, the Project should have been completed by 30 June 2014. The Buyer however raised the following objections:
The Buyer accordingly alleged that the fair hearing rule was breached in that the Tribunal did not consider all important issues. In relation to the Relining Method Evidence, the Court of Appeal considered that while the Tribunal did not expressly mention certain evidence in the Award, the Tribunal had relied on the Buyer's own evidence to arrive at its conclusion that the most prudent and cost-effective manner for correcting the penstock issue. The Court of Appeal held that the Tribunal failed to consider whether explicitly or implicitly if the Buyer's argument relating to the delay caused by the transmission line works was a separate reason for the Project not meeting its Projected Completion Date. This amounted to a breach of natural justice, which had caused real and actual prejudice to the Buyer because the Tribunal had cut off the Buyer’s recovery at only 30 June 2014. Had the Tribunal considered the Buyer's argument that the delay caused by the transmission line works was an alternate and independent source of delay, the Tribunal might have arrived at a different Cut-Off Date. Separately, the Seller argued that the Buyer could no longer challenge the Award, since the Buyer had already commenced enforcement proceedings for part of the Award. The Buyer therefore could not approbate and reprobate. The Court of Appeal disagreed. In its view, there was no inconsistency. The Buyer was enforcing the benefit of the Award, and at the same time seeking to expand the benefit of the Award (by challenging the Tribunal's decision on the cut-off date for its recovery). In the circumstances, the Court of Appeal directed that Award be remitted to the Tribunal to consider whether the transmission line delays would have affected the Cut-Off Date. |
By Daniel Seligman, Columbia Research Corp
Nature of the Case
Summary of Ruling
The High Court upheld the AR’s decision not to strike out the Plaintiff’s claim. But the High Court granted the stay of the court litigation pending the outcome of the arbitration.
Reasoning
On the issue of striking out the Plaintiff’s claims, the High Court cited Order 18 Rule 19(1) of the Rules of Court, which state that a court may strike out a pleading if it discloses no reasonable cause of action or is scandalous, frivolous or vexatious or is otherwise an abuse of the process of the court. The power to strike should be invoked where it is plain and obvious that the plaintiff does not have a cause of action. But the high threshold was not met in this case. On the facts, the Court was of the view that the Plaintiff was acting to preserve its own rights, out of concerns relating to the limitation periods of its claims and stated that it can hardly be said that a party abuses the process of the court simply by acting in a manner that preserves its rights.
The High Court then analyzed the Defendant’s request for a stay of the court proceedings. The primary issue was whether the court’s inherent jurisdiction extended to granting a stay of court proceedings in favour of arbitration. “In my view, such a jurisdiction does exist and is consistent with the court’s inherent jurisdiction to grant a case management stay.” The starting point of the analysis is the Court of Appeal’s decision in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 (“Tomolugen”), which held that the plaintiff’s right to sue whoever he wants and where he wants is a fundamental but not an absolute right. It can be restrained to a modest extent when the plaintiff’s claim is stayed temporarily pending the resolution of a related arbitration.
Granting the stay, the Court was of the view that the Plaintiff had previously demonstrated its willingness to proceed via arbitration and had only turned to the courts due to the position taken by the Defendant in the arbitration and legitimate concerns regarding the limitation period. A stay of the court proceedings will not prejudice the Plaintiff as it can fully avail itself of those rights should the stay be lifted. Furthermore, the Plaintiff itself has been willing to arbitrate and consistently recognized its obligation to do so. This was particularly clear in this case at the early stages of this dispute, and even in the face of persistent jurisdictional objections from the Defendant. Third, the parties to the arbitration and court proceedings are identical, as are the factual bases and claims raised in both proceedings; hence there was a risk of inconsistent findings between the court proceedings and arbitration if the court proceedings were not stayed. Finally, because there are pertinent questions about jurisdiction, the tribunal can deal with those itself. That course of action was still available in the case because the Plaintiff had only written to the SIAC to hold the pending case in abeyance and had not discontinued the proceedings.
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