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Nature of Matter

Setting aside of part of Arbitral Award – breach of natural justice and excess of jurisdiction

Recourse against Award

Case Summary

1. The plaintiff, CAI, was a claimant in the arbitration. B, a subsidiary of CAI, was the owner of a polycrystalline silicon plant (the “Plant”). B assigned its rights to the claims in the arbitration to CAI. CAI and B are collectively referred to as the “Arbitration Claimants”. 
2. The defendants, CAJ and CAK, were the respondents in the arbitration, and were the contractors responsible for constructing the Plant under two connected contracts entered with B.
3. Under the contracts, the defendants were required to achieve “Mechanical Completion” of the Plant by a specified date. Liquidated damages would accrue after a 14-day grace period, at a daily rate of 0.1% up to 10% of the contract price. The defendants could submit a notice for an extension of time for Mechanical Completion under the General Condition (“GC”) 40 of the contracts, and the liquidated damages would only start to accrue if Mechanical Completion were not achieved within the extended time.
4. During the construction of the Plant, there were, inter alia, excessive vibrations in the compressors. CAK requested B issue the Notice of Mechanical Completion despite acknowledging the abnormal vibrations. B rejected CAK’s request, and gave certain instructions in the email dated 1 March 2013 (“1 March 2013 Email”), which resulted in the defendants carrying out piecemeal rectification of the compressors.  This caused delay in Mechanical Completion. It is undisputed that the defendants never requested an extension from B of the deadline for Mechanical Completion, nor complied with the notice provision in GC 40.2.
5. B commenced the arbitration for liquidated damages arising from the delay in Mechanical Completion, which the defendants disputed.
6. In their written closing submissions, the defendants raised for the first time GC 40 and sought an extension of time of 71 days (“EOT Defence”). The defendants alleged that, had it not for B’s instructions, they would have completed rectification work in around 30 days for all compressors if done simultaneously. B’s instructions delayed the completion of the repairs by 71 days. The defendants submitted that they would, if at all, be liable for only 28 days’ worth of liquidated damages, excluding the 14-day grace period plus 71 days.
7. In the Arbitration Claimant’s written closing submissions, the Arbitration Claimants objected to the EOT Defence, which was not pleaded and was not the subject of focused document production, witness evidence or even cross-examination. The Arbitration Claimants also briefly addressed the requirements and the context under which GC 40 would apply and pointed out that these have not been satisfied.
8. The Tribunal found in favour of the Arbitration Claimants in respect of liability on the vibration issue.
9. However, the Tribunal considered the EOT Defence, and decided that the defendants had caused Mechanical Completion to be delayed by 99 days. Taking into account “all the evidence and its experience in these matters”, the Tribunal granted a 25-day EOT, so the Arbitration Claimants were only entitled to liquidated damages for 74 days (being 99 days less an extension of time of 25 days). The difference between 99 days’ worth of liquidated damages and 74 days’ worth of liquidated damages was approximately S$20 million.  
10. CAI filed the present application to set aside the Tribunal’s decision to grant the defendants a 25-day EOT. The High Court had to determine the following issues:
    1. Whether there was any breach of natural justice in the making of the final award and addendum (the “Award”) such that it ought to be set aside.
    2. Whether the Tribunal had acted in excess of its jurisdiction or decided a matter beyond the scope of parties’ submission when it allowed and ruled upon the EOT Defence, such that the Award ought to be set aside.
    3. Whether the doctrine of approbation and reprobation is applicable to prevent CAI from challenging the Tribunal’s decision to allow the 25-day EOT.

(I) Whether there was any breach of natural justice in the making of the Award

A. The absence of a fair and reasonable opportunity to respond

11. The main thrust of CAI’s submissions was that the EOT Defence was only introduced in the defendant’s closing submissions, by which time the Claimants were deprived of an opportunity to adduce factual and expert evidence and obtain document disclosure that would have allowed a fulsome response to the EOT Defence. 
12. In response, the defendants argued that the evidence supporting the Tribunal’s decision on the EOT Defence had been on record (by way of the estoppel defence which relied on the exact same facts and evidence as the EOT Defence). The EOT Defence was belatedly introduced on the Tribunal’s express invitation extended to both parties at the hearing of oral closing submissions. The Arbitration Claimants had responded to the EOT Defence, and if they needed to adduce further evidence, it was incumbent on them to make the relevant application rather than hedge its bets. 
13. The High Court found that there was a breach of natural justice as the Arbitration Claimants did not have a fair and reasonable opportunity to respond to the EOT Defence, The EOT defence was completely new and was introduced at an extremely late stage which, up to that point, had been focussed on the estoppel defence, which was conceptually and factually distinct from the EOT Defence under GC 40. 
14. Even if it was possible for the defendants to advance the EOT Defence based on the evidence relied upon for the estoppel defence, this did not assist the defendant’s case.  Article 18 of the Model Law requires that the Arbitration Claimants had a reasonable opportunity to present its case and respond to the defendant’s EOT Defence with evidence and legal arguments. Also, the defendant’s evidence was insufficient to ground the EOT Defence.
15. On the facts, the High Court also found that the Tribunal did not specifically invite submissions on the EOT Defence.

16.  The High Court also found that the Claimants’ conduct during the arbitration and the objections did not amount to hedging.

17.  On the facts of the case, the High Court found that the Arbitration Claimant’s duty to give fair intimation to the Tribunal and/or to seek to suspend the arbitral proceedings would only have arisen after the Tribunal had made a ruling on the EOT Defence.

18. The High Court further found that if the Arbitration Claimants had been given the opportunity to respond to the EOT Defence, this could have reasonably made a difference to the Tribunal’s determination. There was therefore a material prejudice to the Arbitration Claimants’ rights because of the breach of natural justice. 

B. The Tribunal’s substantial reliance on purported experience (as opposed to available evidence)

19. The High Court held that there was also a breach of natural justice in the making of the Award when the Tribunal arrived at a specific figure of 25 days without giving the Arbitration Claimants a reasonable opportunity to be heard. 
20. The Tribunal claimed to have relied on all the evidence on the facts of the case, and its experience in these matters to derive the specific figure of 25 days EOT.

21.  However, and as acknowledged by the Tribunal in various paragraphs of the Award, there was insufficient evidence which directly addressed the issue of the specific length of an extension of time under GC 40. The Tribunal had arrived at the figure of 25 days without explaining how and on what evidential basis it came to that landing.

22. The High Court found that there was prejudice to the Arbitration Claimants because of the breach of the natural justice as they were unable to present any evidence or submission targeted at the Tribunal’s experience which the Tribunal relied upon to grant the 25-day EOT.

Whether the Tribunal had acted in excess of jurisdiction

23. CAI submitted that the Tribunal had exceeded the parties’ scope of submission to arbitration when it allowed and decided on the EOT Defence.
24. In response, the defendants submitted that the EOT Defence was within parties’ scope of submission to arbitration as: (a) it fell within the substance of the dispute in the Terms of Reference, and in the defendant’s list of issues and pleadings; (b) through the express invitation from the Tribunal to deal with alternate bases of relief from liquidated damages; (c)  the EOT Defence was permitted to be introduced and considered by the procedure set down in the Terms of Reference; and (d) CAI had failed to raise the scope of submission objection before the Tribunal and should not be allowed to raise it in this hearing.
25. The High Court rejected the defendant’s submissions.
26. In relation to (a), the High Court found that the EOT Defence was not among the issues that the parties had referred to the Tribunal for determination.
27. In relation to (b), the High Court reiterated its conclusion that the Tribunal did not invite submissions on the EOT Defence.
28. In relation to (c), under article 23(4) of the Model Law, the Tribunal must first authorise the “new claim / defence” which fall outside the limits of the Terms of Reference. The High Court found that the Tribunal did not state that it was authorising the EOT Defence at any point during the oral hearing or in the correspondence exchanged with the parties afterwards.
29. In relation to (d), the High Court held that the Arbitration Claimants did raise the jurisdiction objection before the Tribunal and were accordingly not precluded from raising in this hearing.

Whether the doctrine of approbation and reprobation applies

30. The defendants submitted that CAI had accepted payment of the liquidated damages under the Award and should be prevented from challenging the Award by the doctrine of approbation and reprobation.
31. The High Court held that the doctrine of approbation and reprobation did not apply to the facts of the case. There was nothing inconsistent about CAI accepting payment in relation to the part of the Award that it did not dispute, and seeking to challenge the part of the Award that it did.

CAI’s recourse against the award

32. CAI sought a court order to (a) set aside the Tribunal’s decision to grant the defendant’s 25-day EOT, and (b) increase the liquidated damages payable by the defendants to CAI by 0.1% of the contract price for each day of delay.
33. The High Court granted (a). However, the High Court took the view that it could not order an increase in the liquidated damages payable. As such, the High Court reformulated CAI’s second prayer such that the number of days of delay for which liquidated damages were payable was 99 days.