SIArb Newsletters

By Daniel Seligman, Columbia Research Corp.

Nature of the Case

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:

1. 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.
2. 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.
3. 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.