By Fayth Kuah
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Nature of Matter |
Setting aside of Arbitral Award, of which the same issues arose |
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Case Summary |
The Plaintiff commenced two arbitrations against different parties (the CEE Arbitration and the CEC Arbitration) which were heard together by the same sole arbitrator (the “Arbitrator”). Although the Arbitrator gave two awards, the same issues arose and his reasoning and conclusions were to the same effect. The Plaintiff took out two separate proceedings, each seeking an order that the final award rendered by the Arbitrator in the respective arbitration be set aside. The grounds raised in the two setting aside applications were identical, and the defendants each relied upon affidavits that were in substance the same and were represented by the same solicitors. At the oral hearing, the parties agreed that only one judgment should be prepared in respect of both proceedings. The CEE Arbitration The Plaintiff and CEE entered into four contracts for the sale of palm oil and canola oil. CEE failed to make payment in April 2016 for the goods supplied in relation to these four contracts, of which the Plaintiff agreed to an extension of the payment due date to July 2016. In June 2016, the Plaintiff and CEE entered into six more contracts for the supply of castor oil. The delivery dates for goods in relation to these six subsequent contracts were initially December 2016 and January 2017 but subsequently extended until March 2017. However, as CEE failed to make payment for the initial four contracts, the Plaintiff unilaterally cancelled the later six contracts on the ground that CEE had failed to pay the sums due under the initial four contracts. Rather than litigate in the courts, the parties entered into an arbitration agreement to resolve the disputes arising from the aforesaid transactions. The arbitration agreement provided that the parties’ dispute was to be resolved by arbitration conducted in accordance with the Arbitration and Conciliation Act, 1996 (India) (“the 1996 Indian Act”), the seat and venue of the arbitration was to be Singapore and the arbitration was to be governed by and construed in accordance with the laws of India. By agreement between the parties, the Arbitrator was appointed as the sole arbitrator. The Plaintiff accordingly commenced the CEE Arbitration, claiming sums due under the four initial contracts together with the sum of US$ 150,000 in respect of certain consequential losses and US$ 50,000 for litigation expenses. CEE contented it was not open for the Plaintiff to cancel the six contracts and counter-claimed for losses of US$ 25,095,000 arising from the failure to deliver the goods under the six contracts as well as consequential loss of opportunity. In relation to the CEE Arbitration, the Arbitrator awarded the following:
Consequently, a net sum of US$ 316,658 rather than US$ 25,391,499 was owning from CEE to the Plaintiff. The Plaintiff applied to set aside the arbitral award in the CEE Arbitration on the grounds that (i) the arbitral award was in breach of the rules of natural justice as the Arbitrator allegedly failed to consider the Plaintiff’s claims for consequential loss, and (ii) the arbitral award was in breach of public policy in holding that the Plaintiff could not unilaterally cancel the six contracts. The CEC Arbitration Between September 2015 and July 2016, the Plaintiff and CEC entered into twenty-five contracts for the sale and purchase of commodities. The Plaintiff duly supplied goods against twenty-two of the twenty-five contracts. The total value of the twenty-two contracts amounted to US$ 83,477.01. Part payment of US$ 300, 000 was made to the Plaintiff but CEC failed to make payment of the balance sum of US$ 83,177,017.91. As a consequence, the Plaintiff unilaterally cancelled the three remaining contracts on the ground that it had not received any further payment beyond US$ 300,000 paid in relation to the earlier contracts. The parties similarly entered into an arbitration agreement to resolve the disputes arising from the aforesaid transactions in the same terms as that agreed for the CEE Arbitration. The Plaintiff commenced the CEC Arbitration to claim the outstanding sums and interest, together with a claim for US$ 250,000 for consequential losses and US$ 50,000 for litigation expenses. CEC counterclaimed a sum of US$ 11,900,000 representing the increase in value of the castor oil due to be delivered pursuant to the three outstanding contracts. In relation to the CEC Arbitration, the Arbitrator awarded the following:
There was however no findings made win relation to the Plaintiff’s claim of US$ 250,000 in respect of consequential losses. The Plaintiff applied to set aside the arbitral award in the CEC Arbitration on the grounds as that relied upon in the application to set aside the arbitral award in the CEE Arbitration. |
| Ruling |
Issue 1: Whether the Plaintiff (the claimant in the arbitrations) could prove a breach of Natural Justice Section 24(b) of IAA allows the court to set aside arbitral award if a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced. The legal enquiry on breach of natural justice is as set forth in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (Soh Beng Tee). The factors to be established by a party challenging an arbitral award on the basis of a breach of natural justice are as follows: (1) Which rule of natural justice was breached; (2) How it was breached; (3) In what way the breach was connected to the making of the award; and (4) How the breach prejudiced its rights. The facts of the two cases meet the first three of the four criteria set out in Soh Beng Tee. Since the breach deprived the Plaintiff of the opportunity of having its claim considered and potentially allowed, its rights had been prejudiced by the breach. Even if all the four criteria set out in Soh Beng Tee are met, there remains the question whether the Court should exercise discretion not to set aside the arbitral awards. In this instance, S.33(4) of the 1996 Indian Act stipulates “Unless otherwise agreed by the parties, a party with notice to the other party, may request, within thirty days from the receipt of the arbitral award, the arbitral tribunal to make an additional arbitral award as to claims presented in the arbitral proceedings but omitted from the arbitral award.” It was open to the Plaintiff to invoke S.33(4) but did not, and the Plaintiff was unable to explain as to why it was not done. In the case of BLC and others v BLB and another [2014] 4 SLR 79 (“BLC”), Art. 33(3) of the Model Law which echoes S.33(4) of the 1996 Indian Act, the Court of Appeal observed, it is clear that the Model Law supports the principle of minimal curial intervention. With regard to application of the principle of minimal curial intervention, the Judge opined if a party is not penalised for relying on Art. 34 without first invoking Art. 33(3), this could potentially be seen as an abuse of the setting-aside process under Art. 34 of the Model Law, particularly in situations where the party is alleging that the tribunal had failed to deal with a relatively minor claim in light of the party’s entire claim. The Judge concluded the balance falls heavily on the side of the principle of minimal curial intervention on the following grounds:
Issue 2: Whether the Plaintiff (the claimant of the Arbitration) could prove a breach of Public Policy Art.34(2)(b)(ii) of the Model Law allows the Court to set aside an award if the award conflicts with public policy of Singapore. It is trite law that an award may only be set aside on the ground that it is in conflict with the public policy of Singapore in exceptional cases. Consequently, the court should intervene only in circumstances where the effect of an award comes into conflict with accepted norms of public decency, behaviour, morality and/or justice. This will seldom be applicable in commercial disputes. The balancing exercise between the policy of enforcing arbitral awards and the judicial policy of minimal curial intervention, and any countervailing policy, of which if violated, would shock the conscience or result in instances where “the upholding of an arbitral award would ‘shock the conscience’ ... or is ‘clearly injurious to the public good or ... wholly offensive to the ordinary reasonable and fully informed member of the public’ ... or where it violates the forum’s most basic notion of morality and justice”. In determining whether the balance tilts towards the countervailing public policy, it is important to consider both the subject nature of the public policy, the degree of violation of that public policy and the consequences of the violation. The Plaintiff’s case on this issue boils down to the result of the awards, in financial terms, is so disproportionate and gives each defendant a financial advantage that the result “shocks the conscience” of the court. Regrettably, the Plaintiff took a risk in extending credit to the defendants as it did not insert a clause in the original contracts requiring payment before shipment, or providing that failure to pay for the earlier contracts would entitle it to cancel the later contracts. It turned out the Plaintiff made certain commercial decisions which turn out to be disadvantageous, which is part and parcel of normal trading. Therefore, ground for setting aside the award also failed on this ground in both actions. Conclusion |